SBH

We rate Sally Beauty Holdings, Inc. (SBH) as a Buy with a composite score of 67.6/100 at a current price of $16.10. The stock scores above average across the majority of our six quantitative factors and ranks #171 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in value (92th percentile) and quality (83th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (37th percentile) and stability (57th percentile) tempers our overall conviction. We assign a Narrow Moat rating (46/100), Medium uncertainty, and Standard capital allocation.

Key items to watch: whether strong momentum is fundamentally supported by revenue trends; balance sheet deleveraging progress. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Sally Beauty Holdings, Inc. holds a top-quartile position (#7 of 50) within the Retail Trade sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 67.6/100 places it at rank #171 in our full 7,333-stock universe. At $1.6B in market capitalization, Sally Beauty Holdings, Inc. is a small-cap player in the Retail Trade space, which limits certain scale advantages but may allow for more agile strategic execution.

The outlook is moderately positive, with revenue expanding at 0% and favorable momentum (77th percentile) reflecting constructive market sentiment. The business shows steady execution, though the growth rate is below the levels typically associated with high-conviction growth stories. Momentum confirmation provides support for the current price level.

The margin cascade tells an important story: gross margins of 51% (+15.2pp vs sector) narrow to operating margins of 9% (+4.8pp vs sector) and net margins of 5.2%, yielding a gross-to-net conversion rate of 10%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $16.10, Sally Beauty Holdings, Inc. appears undervalued relative to its fundamentals. Our value factor score of 92/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 8.1x (a 62% discount to the sector median of 21.4x), EV/EBITDA of 7.4x (near the sector median), P/B of 1.9x, P/S of 0.4x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Medium uncertainty rating to Sally Beauty Holdings, Inc.. The stock presents a balanced risk profile: significant leverage (104% debt-to-equity). While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: significant leverage (104% debt-to-equity). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 57th percentile and quality factor at the 83th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 51% provide a buffer against cost pressures. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate Sally Beauty Holdings, Inc.'s capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 23.3%, and the balance sheet is managed within acceptable parameters (D/E: 104%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; Sally Beauty Holdings, Inc. falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. Absent a dividend, the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, Sally Beauty Holdings, Inc. receives a Buy rating with a composite score of 67.6/100 (rank #171 of 7,333). Our quantitative framework assigns a Narrow Moat (46/100, trend: stable), Medium uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 69/100.

Our analysis supports a constructive view on Sally Beauty Holdings, Inc.. The combination of identifiable competitive advantages, medium uncertainty, and standard capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.