Should You Buy SBH as Peer Discount Meets Growth and Execution Risks?

SBH's Peer Discount Looks Significant

SBH trades at a forward 12-month price-to-earnings ratio of 7.26 compared with 15.82 for its industry. That gap gives investors a clear relative-value argument.

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The discount needs context. SBH's current multiple is already above its one-year median of 7.05, meaning the shares are not especially cheap compared with their own recent history.

Sally Beauty Has Multiple Growth Levers

Adjusted earnings of 55 cents per share topped the Zacks Consensus Estimate of 53 cents by 3.8% and increased 7.8% from 51 cents a year earlier. Earnings per share also rose 25% year over year.

Global e-commerce sales increased 11% to $110 million in the third quarter of fiscal 2026 and represented 12% of net sales. Licensed Colorist OnDemand consultations exceeded 5,200 per week, while new customers using the service increased 28%. Adjusted gross margin expanded 40 basis points to 52.4%, helped by Fuel for Growth.

Sally Ignited store refreshes are another lever. Refreshed locations are outperforming the broader fleet across traffic, dwell time, units per transaction and average transaction value, while assortment expansion in fragrance, care, textured hair and men's products could support basket growth.

SBH's Cash Flow Supports Capital Returns

SBH generated $62 million of free cash flow in the third quarter. It used cash to repay $20 million of term loan debt and repurchase $25 million of stock, ending the quarter with a net debt leverage ratio of 1.4.

Management expects roughly $200 million of free cash flow in fiscal 2026 and plans to direct about 50% toward share repurchases. That gives SBH room to return capital while continuing to fund strategic initiatives.

Sally Beauty Still Has Execution Risks

Beauty Systems Group remains the clearest pressure point. Third-quarter BSG sales declined 2.4%, comparable sales fell 2.1% and transactions dropped 3.2%, with care weakness offsetting better color and nail trends.

Costs and consumer behavior add uncertainty. Adjusted selling, general and administrative expenses rose $5 million to $404 million as higher labor and rent expenses persisted, while promotional activity increased across both businesses and macroeconomic conditions in Mexico softened.

SBH's Valuation Is Not Cheap Versus Its History

The valuation trade-off is straightforward. SBH looks inexpensive against external benchmarks, but the premium to its own five-year median raises the bar for sustained margin gains and better top-line execution.

Ulta Beauty, Inc. ULTA is an international specialty beauty retailer spanning cosmetics, fragrance, skin care, hair care and salon services. e.l.f. Beauty, Inc. ELF is a beauty company focused on cosmetics and skin care, giving investors two relevant beauty-sector reference points with different business mixes from SBH.

Is SBH Worth Considering Now? 

SBH's discount, improving profitability and cash generation support a constructive view, but BSG weakness and rising promotional pressure argue against relying on valuation alone. The stock still needs steadier consolidated growth to make the case more durable.

SBH currently carries a Zacks Rank #2 (Buy), along with a Value Score of A, a Growth Score of B, a Momentum Score of D and a VGM Score of A. The favorable Zacks Rank and the A and B Style Scores support the near-term case, while the Momentum Score of D tempers that signal and keeps execution in focus. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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