Shares of Barnes & Noble, Inc. (BKS) were gaining today on a favorable report from Barron's over the weekend, sending the stock up 10% for the day.
The financial magazine said the perception that Amazon.com is killing Barnes & Noble incorrect, as the brick-and-mortar bookseller has survived Amazon's onslaught, e-book sales have stabilized, and Barnes & Noble stores are profitable. Author Andrew Bary went on to argue that management has projected a steady increase in EBITDA, from a range of $200 to $250 this year to a range of $270 to $310 million in fiscal 2020, and that the stock's valuation could present an upside, as it trades a price-to-sales ratio of just 0.2 and has a 5.3% dividend.
Despite closing many stores in recent years, the company still has 640 locations and a $25-a-year membership program with 6 million members and a 70% renewal rate, indicating a lasting business model.
Bary isn't the first one to make such a bullish argument. Barnes & Noble stock has bounced between $10 and $20 for much of the past five years, as the company's outlook seems to change with every quarterly earnings report or analyst call.
While it's true that the retailer has survived Amazon, the e-commerce giant has developed near-monopoly power in the book industry, and its steps into its own brick-and-mortar stores could present a further threat to B&N. Though Barnes & Noble's stores are now profitable on an operating level, the company's Nook experiment has proved costly, and its net income has been negative for more than five years.
Things have been slowly improving for Barnes & Noble, but it's long-term success is far from guaranteed. I'd expect the stock's volatility to continue.