Bed Bath & Beyond Weakness Is an Opportunity

According to the market, Bed Bath & Beyond (NASDAQ: BBBY  ) is falling behind. The home-goods megaretailer had the unfortunate luck of delivering mediocre guidance at a time when the industry at large should be growing comfortably from last year's levels. But in its recently ended quarter, the company didn't perform poorly, especially considering some pretty serious headwinds. Investors may want to keep their eye on the long game, as the business has plenty to offer shareholders. Is Bed Bath & Beyond deserving of its 52-week low? Let's find out.

Cleanup on Aisle 1
Sales fell in Bed Bath & Beyond's final quarter of fiscal 2013 on the back of difficult weather, a cautious consumer, and ever-increasing competition. For a company that has a massive load of retail square footage to leverage, the industry trends may look daunting.

However, the company still managed a 1.7% same-store sales gain for the quarter ended on March 31. The number is particularly compelling in light of the fact that 2012's fourth quarter delivered a 2.5% same-store sales jump. In an extremely challenging quarter, this business still leaped above a short-term high-water mark.

Still, investors and analysts apparently wanted more, especially looking forward. Management guided for $0.92-$0.96 in earnings per share for the current quarter -- as much as $0.10 under estimates. With March retail figures trickling in and showing a strong recovery from the weather-battered January and February results, it is unsettling to see Bed Bath & Beyond failing to join the broader improvement. Sectorwide sequential seasonally adjusted sales rose 1.1% in March -- the biggest sequential climb since September 2012.

Negative Nancys
Bed Bath & Beyond's scale is undeniably at the top of its game. While large-format brick-and-mortar retailers have an uphill battle against the rise of e-commerce, this is one player that is positioned well to endure. The company's increasing portfolio of brands, from its namesake stores to Cost Plus World Market, offers total product variety that few can match in the physical realm. Store footprints are expanding, and the company is playing into long-term tailwinds for the home-goods and decor industry.

At less than 11 times earnings, the company is priced attractively for its long-term prospects. With an EV/EBITDA of 6.68 times, the value proposition is even more apparent. This is a stock that has appreciated more than 100% over five years. While that is not tremendous, it is steady and convincing. Consider this short-term weakness an opportunity to own a great business at a great price.

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