Bed Bath & Beyond (BBBY) still a value
02-13-07: Bed, Bath & Beyond Inc. (BBBY) operates approximately 800 stores selling high quality domestic merchandise and home furnishings at prices below those offered by department stores. The company’s breadth and depth of products far exceeds what is available in most department stores. As a “one stop” shop for household products with sound fundamentals, we believed this stock could double in the next 3 years. Trading at current level ($42.29), see an opportunity for superior return with this stock. Here are the key points for our view.
Even in a slow market, we believed BBBY could potentially do well due to the company’s ongoing growth opportunities. Recently, there were some concern over the company’s maturation business model which caused some analysts to downgrade the stock, but we believed the opportunities for BBBY to grow remains strong. In our view, the recent acquisition of Christmas Tree Shop and Harmon Stores will provide catalyst for future growth.
BBBY share did not perform well in 2006 as the housing market slowed. Even though the macroeconomic condition negatively impacted BBBY, the company was able to consistently deliver revenue and earnings growth inline with expectation. We view the current valuation of BBBY as an opportunity. Any positive news regarding the housing sector should result in appreciation of BBBY shares.
A few months ago, we wrote about BBBY when it was trading at $38 per share after analyzing the company’s financial position. We were impressed with the cash this company has just sitting in the bank. This stock is now 4 points higher since that article, which represents approximately 11 percent gain in about three months. That is certainly a respectable appreciation by any measure.
While it is too early to predict the upturn in the housing market, we do believe the housing market is close to its bottom. Given shares of BBBY has already been discounted for “worse-case-scenario”, we see the risk factor as minimum. Once we have a better clarity into the housing market, we believed this stock will start moving up.
