L Brands Inc (NYSE:LB) has had a steep fall from grace over the past several years. LB was once considered one of the widest moat and most successful retailers in the world. After rising from $40 in 2011 to $100 in 2015, LB stock has since crashed all the way back to under $40.

The culprit? Victoria’s Secret. While the company’s Bath & Body Works business has continued to perform at an impressive rate, the company’s Victoria’s Secret segment has struggled mightily.

Those struggles began in 2016. At first, investors chalked up the struggles to Victoria’s Secret exiting the swim and apparel businesses. Those exits were of sizable magnitude, so naturally, the drag on financial results was quite large.

But LB started recently phasing out those swim and apparel exit headwinds. Yet, comparable sales growth at Victoria’s Secret didn’t come roaring back. Comps were up in the low to mid single digit range to start 2018. That is pretty weak considering the lap in both January and February was a double-digit decline.

Overall, investors now suspect there is something more to Victoria’s Secret declines than just the swim and apparel exit, and they are right.

Bombshell Beauty Out, Natural Beauty In

Victoria’s Secret finds itself on the wrong side of the tracks when it comes to the intimates market. Victoria’s Secret has a reputation for “bombshell beauty” — the image they’ve made their money on is one of supermodel-type beauty. The women who make up their core market don’t look like the women who advertise their products. (The women who advertise their products often don’t even look like the women who advertise their products.) And their marketing has been so successful that this image is now linked to Victoria’s secret in consumers’ minds — for better or for worse.

Now, there is a massive movement away from the kind of  “bombshell beauty” that Victoria’s Secret has a reputation for — and has made a killing on — and towards more natural beauty.

To illustrate this, lets compare two brands. Victoria’s Secret has struggled to comp positive recently, and when it does, the comps are weakly positive against massively negative laps. Aerie, which is an intimates brand owned by American Eagle Outfitters (NYSE:AEO), has experienced red-hot growth lately, including a 34% comp in the most recent quarter.

Aerie, unlike Victoria’s Secret, has a reputation for promoting natural beauty. On their website, you will find models of all sizes wearing much more natural clothing than what Victoria’s Secret is known for. You will also find the #aeriereal campaign, which is all about empowering girls to feel sexy in their own bodies.

Aerie is thriving. Victoria’s Secret isn’t. The reason? Natural beauty is in. Bombshell beauty is out.

This transition, not the swim and apparel exits, is at the heart of the problems plaguing Victoria’s Secret. Rebecca Harrington of Business Insider details the store’s attempts to change in all the wrong ways, driving away even loyal customers.

And this market transition isn’t a near-term phenomena. It will likely last for multiple quarters. Consequently, LB stock should be subject to lower-than-normal growth over the next several years.

LB Stock Is Materially Undervalued

But that does that mean you should avoid L Brands stock here and now? No. Investors have punished this stock enough. Slow growth and minimal margin expansion should be enough to send this stock materially higher in the long run.

On the positive side, L Brand’s struggles are limited almost exclusively to Victoria’s Secret. Bath & Body Works has been putting up great numbers recently. Moreover, Victoria’s Secret won’t go away. Comparable sales growth is positive (albeit very low) and will remain positive because the store’s reputation for “sexy” is strong, even if that’s not the most popular reputation to have right now.

Over the past several years, while Victoria’s Secret was red-hot, sales growth ran around 3-6%. Now, with Victoria’s Secret cooling but Bath & Body Works red-hot, sales growth should run around 2-5% over the next 5 years, or 3.5% at the midpoint.

Margins have been dragged down recently by material weakness at Victoria’s Secret. They won’t rebound with much ferocity any time soon. LB will likely be forced to continue to run promotions to drive traffic amid intensified competition from natural beauty vendors. Higher direct selling expenses will also be a major and enduring factor going forward.

Operating margins were 13.7% last year. They were 18% at their peak in 2015. Positive sales growth should help margins rebound some, but the aforementioned headwinds will prevent margins from getting back to peak levels. Overall, 15% operating margins seem achievable in 5 years.

Revenue growth of 3.5% per year over the next 5 years and operating margins of 15% puts revenues and operating profits at $15 billion and $2.25 billion, respectively, in 5 years. Taking out $400 million for interest expense, 25% for taxes, and dividing by presumably 280 million shares, that equates to roughly $4.96 in earnings per share in 5 years.

A market-average 16-times forward multiple on those $4.96 earnings implies a four-year forward price target of $79. Discounting that back by 10% per year, you arrive at a present value of roughly $54.

Bottom Line on LB Stock

Yes, the company’s Victoria’s Secret segment faces secular headwinds as natural beauty trends continue to rise. Even if it were to change, the brand is linked to a certain image. But that image has enduring demand, and the company’s Bath & Body Works segment continues to pump out great numbers.

Under $40, LB stock is materially undervalued.

As of this writing, Luke Lango was long LB.