The last few years have been tough for Bed Bath & Beyond (NASDAQ:BBBY) investors.

Since topping out at over $80 a share in late 2013, the giant big-box retailer has seen a steady slide in price and recently hit an all-time share-price low of $7.34. This slide came during an economic boom in consumer spending, a rebounding housing sector, and a bull market that has pushed the S&P 500 up by some 80% over the same time frame.

Speculation was rife that the home goods retailer would inevitably default on some of its $1.5 billion in debt. The current holiday shopping season (when many retailers generate over half their net income) has done little to dampen some investors' pessimistic outlooks on the long-term survivability of this troubled department store.

In the face of the gloomy outlook, Bed Bath & Beyond stock surprised many this month by bouncing back somewhat, and it may turn into a comeback story for 2020. How did this happen?

Bed Bath & Beyond Introduces Second Private Label Home Furnishings Brand in 2019: One Kings Lane Open House

Image Source: Bed Bath & Beyond

A new CEO cleans house at the home goods retailer

Bed Bath & Beyond put President and CEO Mark Tritton in charge of the company in early November. About six weeks later, Tritton announced his first big house cleaning, a restructuring that included the purging of six senior executives. The company's share price rallied, and it is now approaching a 52-week high.

"This bold pivot reflects the priorities of [Tritton], who will launch his new vision for the company in early 2020," the company said in a Dec. 17 statement. "The new team will be charged with streamlining decision-making, accelerating the pace of transformation, and reestablishing Bed Bath & Beyond's authority in the home space through a more customer-focused, omnichannel retail operation, a redefined product assortment, and a more convenient and inspirational shopping experience."

Tritton, a 30-year veteran of the retail industry, first joined Target in 2016 as executive vice president and chief merchandising officer. Previously, he held senior executive roles at Nordstrom, Timberland, and Nike. During his tenure at Target, the stock price nearly doubled in the face of brutal competition from Walmart, the e-commerce incursion of the U.S. retail landscape, and, surprisingly, a string of one big-box retailer bankruptcy announcement after another. 

Making a potentially risky investment

Buying into a stock that is getting hit on numerous fronts can be risky. But distressed assets at times have a way of bouncing back and producing a triple-digit return for the tactical investor. 

While still not in bankruptcy nor even announcing any major store closures, the financials for Bed Bath & Beyond have been bad and potentially getting worse. The retailer's bonds (which promise a 4.95% return and are due in 2034) are now trading at 73 cents on the dollar, which is on the borderline of junk debt. Despite substantial investment, the company has so far limited success in growing its e-commerce business. Brick-and-motor transactions have been on a steady decline for the last 10 quarters with no clear cut turnaround plan in sight.

By contrast, many of Bed Bath & Beyond's peer competitors, who are facing the identical difficult retail environment, have been gaining at least some ground against web-based retailers. Home Depot, The TJX CompaniesCostco, and Target are all generating solid revenue numbers. 

Bouncebacks, however unlikely, do happen

But a turnaround for Bed Bath & Beyond shares may really be in sight. For one, this is a bargain stock at the moment. The shares are trading at only 7.2 times the consensus earnings estimates for 2020. That rock bottom estimated P/E ratio is unlikely to go much lower. Even though all store properties are leased and the company owns little commercial real estate, the company does have valuable assets that could be monetized, if necessary. It may decide to downsize and concentrate purely on core holdings -- a tried and true turnaround recipe. An offloading of brands it controls like Linen Holdings, Buy Buy Baby, Christmas Tree Shops, and/or World Market could also generate cash if needed.

Further, contrary to predictions of the death of brick-and-mortar retailing, big-box turnarounds do happen. Best Buy (NYSE:BBY) came back from the brink and successfully pulled off a turnaround by ruthlessly cutting costs, forcing productivity enhancements, focusing squarely on its core business, partnering with marquee vendors like Apple to enhance the shopping experience, and investing heavily to build out its e-commerce business. The growth of Best Buy's Geek Squad subsidiary has also drawn foot traffic into the stores. 

Wall Street analysts are now starting to look carefully at Bed Bath & Beyond stock as a highly speculative, yet potentially lucrative, long-term hold. Wedbush Securities attributed the stock surge to the huge restructuring potential that Tritton will deliver to the company.

 "We would not be surprised to hear Mr. Tritton point to hundreds of millions of dollars of cost savings opportunities in [Selling, General & Administrative] and Cost of Goods Sold, likely partially offset by some necessary investments, but as importantly we will focus on his ideas for reinvigorating traffic in stores," Wedbush analyst Seth Basham said in a recent note to clients.

All eyes will be on Bed Bath & Beyond's stock price on Jan. 8 when it announces third-quarter earnings results for 2019. These results will reflect operations before the new CEO took over midway through the quarter. However, investors will be keen to hear what moves Tritton has planned to turn the company around as it will be his first earnings report opportunity to do so. Savvy speculative investors may want to take a closer look at Bed Bath and Beyond as a cheap value stock with substantial upside potential.