How High Can Bed Bath & Beyond Fly?

Shares of Bed Bath & Beyond (Nasdaq: BBBY  ) hit a 52-week high today. Let's take a look at how the company got there to find out whether clear skies remain on the horizon.

How it got here
Bed Bath & Beyond has been a steady performer for the past few years, beating most in its peer group for gains save Pier 1 Imports (NYSE: PIR  ) :

BBBY Total Return Price Chart

BBBY Total Return Price data by YCharts

Specialty retail, particularly the home-beautification sort Bed Bath & Beyond engages in, has performed well post-crash. Some Fools are baffled at the company's performance in light of continued housing market weakness, but that might be the key to the puzzle. Nervous consumers are afraid to strike out and buy a new place, but they have money to spend on making their current place look better. Here's how Bed Bath & Beyond has done over the past half-decade:

BBBY Revenues TTM Chart

BBBY Revenues TTM data by YCharts

Steady, improving performance plus a mostly flat valuation does tend to raise the price of a stock. A recent acquisition also moves Bed Bath & Beyond into new markets. This could be a big positive or a drag depending on the execution, but the market seems to be nodding in silent approval so far.

What you need to know
Bed Bath & Beyond sports one of the highest valuations in its sector, but also has one of the highest profit margins. If its competitors can maintain the substantial growth they've sported over the past few years, Bed Bath & Beyond could wind up sinking into the middle of the pack:

Company

P/E Ratio

3-Year Annualized Earnings Growth

Net Margin (TTM)

Bed Bath & Beyond 17.9 18.2% 10.4%
Williams-Sonoma (NYSE: WSM  ) 16.1 45.2% 6.3%
Pier 1 Imports 11.5 24.8% 11.0%
Macy's (NYSE: M  ) 12.4 58.5% 4.9%
Target (NYSE: TGT  ) 13.4 5.7% 4.2%

Source: Yahoo! Finance and Morningstar.

Bed Bath & Beyond's whole sector has floated higher on consumers' needs to feel better about not being able to move. Both Bed Bath & Beyond and Pier 1 had blowout quarters last month, helping to drive shares higher. More diversified competitors Macy's and Target have had a harder time recovering. While they've brought post-crash investors big gains, there's uncertainty as to whether growth can continue in a rather flat economy. Macy's hit its earnings peak in 2006, and Target is barely above the profit it made in 2008.

Bed Bath & Beyond, on the other hand, saw a relatively shallow drop in 2009 before setting new profit records each year afterward.

What's next?
Where does Bed Bath & Beyond go from here? That could depend mainly on the continued housing market weakness being answered with better decorations. Conversely, a housing rebound might also be a boon, as new homeowners look to flesh out their bare walls and dull rooms. The Motley Fool's CAPS community has given Bed Bath & Beyond a three-star rating, with 1,027 Fools expecting the stock to continue its 52-week trend higher.

Interested in tracking this stock as it continues on its path? Add Bed Bath & Beyond to your watchlist now for all the news we Fools can find, delivered to your inbox as it happens. For another steady performer with lots of potential, take a look at The Motley Fool's exclusive free report on our top stock for 2012.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. Motley Fool newsletter services have recommended buying shares of Williams-Sonoma and Bed Bath & Beyond. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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