If You’re Looking for a Bargain, Try Bed Bath & Beyond

Bed Bath & Beyond has fallen precipitously in 2014, and it is coming off a quarter in which it missed estimates. So how does its valuation compare to its competitors’ now that its stock has dropped significantly?

May 29, 2014 at 5:00AM

Investors have gone sour on Bed Bath & Beyond (NASDAQ:BBBY) in 2014. Its stock has declined just short of 24% during the year and dropped more than 6% after the company reported its fourth-quarter earnings.

BBBY Chart

Bed Bath & Beyond data by YCharts

Fourth-quarter earnings equaled Wall Street's consensus estimate, but the company's revenue fell short. Bed Bath & Beyond's quarterly earnings per share were $1.60 versus $1.68 in the year-ago quarter. Revenue also declined to $3.2 billion compared to revenue of approximately $3.4 billion in the year-ago period, a decrease of 5.8%.

Wall Street's disappointment, Bed Bath & Beyond's falling stock price, and the company's recent quarter have created a buying opportunity for value-hungry investors. Bed Bath & Beyond's stock now trades at an attractive valuation compared to its larger competitors Wal-Mart Stores (NYSE:WMT) and Target (NYSE:TGT) in addition to its smaller rivals Williams-Sonoma (NYSE:WSM) and Pier 1 Imports (NYSE:PIR).

 

P/E

Forward P/E

5-yr. PEG

P/B

P/CF

Bed Bath & Beyond

13

12

1

3

10

Wal-Mart Stores

16

14

2

3

11

Target

18

13

1

2

6

Williams-Sonoma

24

20

2

5

15

Pier 1 Imports

18

13

1

4

12

Source: Morningstar

The declines have created a buying opportunity
Compared to its competitors, Bed Bath & Beyond is a bargain on a trailing-12 month earnings basis. Its P/E of 13 is the lowest among its large and small competitors contrasted here, and it is significantly lower than the S&P 500 index's P/E of 18. On a forward-looking basis, Bed Bath & Beyond's P/E of 12 is also the lowest among its competitors. Three of the companies are relatively close on a forward P/E basis though, with Target, Pier 1, and Wal-Mart also offering a good value on this basis.

Bed Bath & Beyond is similar to Target and Pier 1 when looking forward five years and considering analysts' growth estimates for that period.

Wal-Mart and Williams-Sonoma seem a little pricey, considering a five-year PEG ratio with a value of 1 indicates fair value and less than 1 indicates a discount. Therefore, Bed Bath & Beyond, Wal-Mart, and Pier 1 look undervalued when considering their five-year growth estimates and their resultant PEG values of 1.

On a book value basis, Target stands alone with a P/B of 2; it is followed by Bed Bath & Beyond and Wal-Mart, with P/B ratios of 3. The real value of these companies, though, is in their ability to sell their products and not the value of their real estate or sitting inventory. I believe valuation metrics evaluating their earnings ability such as P/E, forward P/E, and PEG are more important for these particular retailers.

Even more important than earnings or book value is the tangible and economically significant ability of these companies to generate cash. On that basis, Target trades at a significant discount compared to the other companies, with a P/CF of 6. Target's low cash flow multiple is most likely a result of its recent data-breach woes. Target is followed by Bed Bath & Beyond, with a P/CF of 10; this is also cheaper compared to the other companies' P/CF but still significantly higher than Target's.

Recent results are not an indication of the future
Investors should not be too alarmed by Bed Bath & Beyond's last quarter, as its stores took a one-time hit from the weather. The company was forced to close a store 464 times for a full day in its last quarter and 1,923 times for part of the day. Bed Bath & Beyond estimates that those closings reduced earnings per share by $0.06 to $0.07.

Furthermore, 2013's fourth quarter had one less week than 2012's. Therefore, a combination of weather and a shorter reporting period -- one-time events -- negatively affected Bed Bath & Beyond's earnings and revenue. Those events should not be factored into future quarters or be taken as an indication of Bed Bath & Beyond's future.

Nonetheless, the quarter furthered Bed Bath & Beyond's drop but has created a cheap investment for value-conscious investors. Although not the lowest in all valuation metrics explored here, Bed Bath & Beyond offers an overall attractive valuation for investors seeking a bargain; the company thinks so too, as it repurchased 7.5 million shares in the 2013 fourth quarter for an aggregate value of $532 million.

Bed Bath & Beyond also has $1.1 billion remaining in its share-repurchase program, so long-term investors will benefit both from purchasing the stock themselves and from Bed Bath & Beyond buying back shares.

Another stock that is attractive like Bed Bath & Beyond
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Andrew Sebastian has the following options: long August 2014 $65 calls on Bed Bath & Beyond. The Motley Fool recommends Bed Bath & Beyond and Williams-Sonoma. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers