Victoria's Secret & Co (VSCO) Weekly Chart Analysis: Double Bottom Formation Signals Potential Reversal Amid Challenging Retail Environment
TLDR
Victoria's Secret shows promising technical reversal signals with an emerging double bottom pattern, despite fundamental headwinds including declining earnings estimates. Entry opportunity at $18.32 with target of $25.00 and stop-loss at $16.00, offering a 1:2.5 risk-reward ratio. Significant analyst downgrades and margin pressures warrant caution, making this a high-risk, potentially high-reward trade with a 2-3 month timeframe.
Technical Analysis
Chart Specifications
Weekly chart of VSCO as of March 28, featuring 20, 50, and 200-period SMAs with volume indicators.
Current Market Structure
VSCO has been in a primary bearish trend since early 2022, but recent price action suggests a potential reversal. The stock is currently trading at $18.32, below both the 20-period and 50-period SMAs, indicating short-term bearish momentum. However, the recent cross above the 200-period SMA provides a potential long-term bullish signal.
Key support levels are established at $18.32 (current price and recent low) and $16.00 (previous low), while resistance levels exist at $25.00 (previous high) and $30.00 (psychological level).
Chart Patterns and Volume Analysis
An emerging double bottom pattern is forming with lows at $16.00 and $18.32, a classic reversal formation suggesting accumulation. This pattern is reinforced by a bullish engulfing candlestick at the recent low.
Volume analysis shows significant increases at recent lows, indicating strong buying interest at these support levels. These volume spikes at key reversal points add credibility to the potential trend change, as institutional buying typically manifests through such volume signatures.
Fundamental Analysis
Financial Health Assessment
Victoria's Secret presents a mixed financial picture. The company maintains a current ratio of 1.048, indicating adequate short-term liquidity, but a concerning quick ratio of 0.281 suggests potential challenges meeting immediate obligations without selling inventory. With $227 million in total cash ($2.88 per share) against $2.7 billion in total debt, the high debt-to-equity ratio of 406.3% represents a significant financial risk.
Profitability metrics show moderate strength with:
- Gross margins of 44.9%
- EBITDA margins of 9.4%
- Operating margins of 12.0%
- Net profit margins of 2.6%
The return on equity stands at an impressive 30.7%, though this is partially inflated by the high leverage.
Growth Trajectory
The fundamental outlook appears challenging. Revenue growth is minimal at 1.1%, while earnings growth is stagnant at 1.2%. For the upcoming quarter (ending April 2025), analysts project:
- Revenue decline of 2.7% year-over-year to $1.32 billion
- EPS decline of 83.2% to $0.02 (compared to $0.12 year-ago)
The full fiscal year ending January 2026 shows:
- Marginal revenue growth of 0.34% to $6.25 billion
- EPS decline of 11.7% to $2.38 (from $2.69)
Analyst Sentiment
Analyst sentiment has deteriorated significantly:
- Mean recommendation is "Hold" (2.82 on a scale of 1-5)
- Target prices range from $19 to $42, with a mean of $27.68
- 8 analysts have downgraded EPS estimates in the last 30 days for the current quarter
- 10 analysts have downgraded full-year EPS estimates in the last 30 days
The consistent pattern of downward EPS revisions across all time periods is particularly concerning, with current quarter estimates falling from $0.27 90 days ago to just $0.02 currently.
Trade Scenarios
Bullish Case
Entry Strategy: Buy at current level of $18.32 or on a pullback that holds above this support Target: $25.00 (previous resistance level) Stop-Loss: $16.00 (previous low) Risk-Reward Ratio: 1:2.5 ($2.32 risk for $6.68 potential gain) Timeframe: 2-3 months
Rationale: The double bottom formation suggests accumulation at these levels. If the pattern completes with a break above $20, momentum could carry the price to the $25 target. Recent earnings surprises (beating estimates in the last four quarters) provide fundamental support for a potential recovery.
Bearish Case
Entry Strategy: Short below $18.32 on a breakdown of current support Target: $16.00 (previous low) Stop-Loss: $20.00 (above recent resistance) Risk-Reward Ratio: 1:1.1 ($1.68 risk for $2.32 potential gain) Timeframe: 1 month
Rationale: Deteriorating fundamentals and consistent downward EPS revisions could pressure the stock. A break below current support could trigger a retest of the $16 level. The unfavorable risk-reward ratio makes this a less attractive trade than the bullish scenario.
Risk Factors
Technical Warning Signals
- Price remains below short-term moving averages (20 and 50 SMAs)
- Double bottom pattern is not yet confirmed; needs break above $20
- Weekly RSI (not mentioned in original analysis) may show bearish divergence
- Failure to hold $18.32 would invalidate the bullish thesis
Fundamental Concerns
- Significant downward revisions to earnings estimates across all timeframes
- High debt-to-equity ratio of 406.3% limits financial flexibility
- Declining EPS projections (-83.2% for current quarter, -11.7% for full year)
- Weak quick ratio (0.281) suggests potential liquidity challenges
- Minimal revenue growth (0.34% projected for FY2026)
- Retail sector headwinds including inflation and changing consumer preferences
Conclusion
Victoria's Secret presents a compelling technical setup with its emerging double bottom pattern, suggesting a potential reversal from its long-term downtrend. The technical picture is strengthened by volume confirmation at key support levels and a recent cross above the 200-period SMA.
However, the fundamental outlook presents significant challenges, with deteriorating earnings estimates, minimal revenue growth, and a concerning debt load. The consistent pattern of analyst downgrades across all timeframes indicates waning confidence in the company's near-term prospects.
For traders, the bullish technical setup offers an attractive risk-reward ratio of 1:2.5, making a long position at current levels ($18.32) with a target of $25.00 and stop-loss at $16.00 a reasonable trade. The potential 36% upside within a 2-3 month timeframe compensates for the fundamental risks.
Investors with longer time horizons should approach with caution, as the company's high debt levels and declining earnings trajectory suggest structural challenges that may limit sustained appreciation beyond the technical target.
Positioning Strategy: Consider a half-sized long position at current levels with plans to add on confirmation of the double bottom pattern (break above $20 with volume). Maintain strict stop-loss discipline at $16.00 and consider taking partial profits at the $25.00 target.
Disclaimer: This analysis is for informational purposes only and does not constitute investment advice. The views expressed are based on technical and fundamental data available at the time of writing. All investments involve risk, and past performance is not indicative of future results. Readers should conduct their own research and consult with a financial advisor before making investment decisions. This article was written with the help of AI models