For a business that looked like it was on the verge of collapse not that long ago, Bed Bath & Beyond (NASDAQ:BBBY) has come through the coronavirus pandemic looking better than it has in years.

Although sales are still down sharply year over year for the first six months of the retailer's fiscal 2020, the home goods leader has a focused turnaround plan in place. That gives it a good foundation from which to build a new future for itself, but Bed Bath & Beyond has a deep hole to climb out of, one it dug for itself from years of benign neglect.

As we round the corner into the new year, let's see if this once-mighty home goods retailer's stock is worth buying.

Two women in a store looking at throw pillows in various colors

Image source: Getty Images.

Back in fighting shape

Bed Bath & Beyond has shed all of its noncore segments, selling off its online flash sale site One Kings Lane and tchotchkes outlet, as well as ancillary home goods businesses Cost Plus World Market and Christmas Tree Shops. Instead, it's going to focus solely on its namesake stores, baby care chain buybuyBaby, and personal care outlet Harmon Face Values.

With a slimmed-down footprint, a commitment to remodeling what's left, and a mandate to reinvigorate its supply chain by investing $250 million over the next three years, Bed Bath & Beyond is giving itself its best shot at recovering lost momentum and market share.

Part of the plan also includes integrating an omnichannel perspective into its road map for growth. For too long the retailer ignored the potential for internet sales, then tried to make up for lost time with a helter-skelter approach to e-commerce (i.e., the acquisition of those weirdly unrelated online sites).

Now there is a much more cohesive plan of attack, but that canyon it's still climbing out of remains formidable.

Risks abound

Such a dramatic transformation as Bed Bath & Beyond is attempting is rife with risk. There are a lot of moving pieces it is trying to adjust all at once, and though they're not all necessarily intertwined, there is a certain amount of overlap where the failure of one part could negatively impact another.

For example, the home goods retailer has dramatically reduced the number of suppliers it uses to just 60 as a means of limiting selection. While that helps minimize merchandise choice complexity, it also risks upsetting customers who can't find the assortment of goods they're seeking.

The company plans to reduce the number of vendors even further over the next few years in a bid to drive an additional $100 million to $150 million in savings. 

And then it needs to convince consumers to be supportive of its efforts and return to the store. Customers have been shifting to e-commerce in ever greater numbers, particularly during the pandemic. Even though Bed Bath & Beyond has been implementing a better system, signing on with Shipt and Instacart for same-day delivery,, Target, and Walmart have been poaching the home goods retailer's base for years. 

Worth the risk?

A bet on Bed Bath & Beyond now is one that says management is up to the task. I think CEO Mark Tritton has proven himself capable so far. I think there is a good chance he is successful, and buying the retailer's stock now gives investors a sizable discount.

Shares trade at 18 times earnings expectations and just a fraction of its sales. Importantly, Bed Bath & Beyond has begun the necessary effort to generate significant free cash flow again -- some $750 million this past quarter -- and it goes for a discounted 12 times the free cash flow it produces.

One area I am concerned with is its equal commitment to buying back shares. At times, repurchases can be an appropriate use of shareholder resources, but Bed Bath & Beyond should be plunging all its available cash into its business right now and not diverting it to prop up earnings per share. Its plan to buy as much as $825 million worth of stock over the next three years is wasteful considering the retailer's other, more pressing needs.

Still, overall, I think Bed Bath & Beyond's potential rewards outweigh its risks, and though I wouldn't bet the farm on its shares, I think the home goods retailer's stock should be considered a buy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.