Why Helen of Troy Surged This Week

Shares of Helen of Troy (NASDAQ: HELE) rallied this week, rising 15.3% through Thursday trading, according to data from S&P Global Market Intelligence.

Helen of Troy actually released earnings this week for its quarter ending on Aug. 31. While the numbers in and of themselves don't look great, they defied analyst expectations. But is this turnaround worth the gamble now?

Strong stock performance on low expectations

Helen of Troy is a consumer products company with a variety of brands grouped under its Home & Outdoor and Beauty & Wellness segments. In its fiscal second quarter, the company saw revenue decline 3.5% to $474.2 million, while adjusted (non-GAAP) earnings per share (EPS) decreased 30.5% to $1.21.

While these results are rather uninspiring, Helen of Troy's stock actually surged because both figures came in ahead of lowly expectations for $459 million in revenue and $1.05 in EPS, respectively. Another bright spot was that the Home & Outdoor segment actually grew 0.8% to $241.9 million, even as the Health & Beauty segment declined 7.7%. But the Home & Outdoor segment now makes up just over 50% of sales, providing hope for better growth metrics ahead.

Additionally, management maintained its outlook for the fiscal year of $1.885 billion to $1.935 billion in revenue, down 3.5% to 6%, and adjusted diluted EPS between $7 to $7.50. With the stock trading in the $62 range just prior to Wednesday's earnings, that was only 8.5 times that earnings outlook. Even after this week's surge, the stock now trades at roughly $72, just around 10 times the midpoint of the range.

Is Helen of Troy a deep value turnaround? Or a trap?

Helen of Troy continues to implement "Project Pegasus," by which it will invest $55 million in cost savings and restructuring charges through fiscal 2025 in order to achieve $75 million to $85 million in cost savings by the end of fiscal 2027. While investors await those savings, management has done a good job lowering the company's debt over the past year, from $844.9 million to $713.2 million.

With a low valuation and management working to improve profitability and pay down debt, Helen of Troy's stock could still work from here. However, investors shouldn't expect great growth from the company, so the potential rewards from Helen of Troy's turnaround efforts don't appear to outweigh the risks at this point.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.