Picking up a bargain in June

by admin on July 3, 2014

BedbathandbeyondIn June, shares of Bed Bath & Beyond (BBBY), one of the most efficiently run companies around, dropped by 5.7%. Year to Date, its shares have dropped 28.53%. This is one of those very rare opportunities to invest in a great company selling at a very good price. Price to sales is just 1.049 and price to tangible book value is 3.42, the lowest ratio over the past 12 months. Bed Bath & Beyond’s management has attributed the margin pressure to two factors. First, customers have become more price-sensitive, and are trading down to lower-priced items and using more coupons. Additionally, Bed Bath & Beyond’s costs are rising due to investments in a new technology infrastructure focused on improving online and “omnichannel” sales. To compensate for this decline and maintain EPS levels, BBBY has been buying back its own stock at a face pace. This is a fantastic commitment to investors that very few companies are willing to adopt. As you can see on the graph below, BBBY has been buying back shares constantly since 2010, and although the company doesn’t pay dividends, buying back stocks is another excellent way to return capital to investors. BBBY management is also committed to continuing these policies.

BBBY Chart BBBY data by YCharts

Despite another quarter of weak sales growth, I still think Bed Bath & Beyond is a good bet for value investors. The company’s management expects sales growth to strengthen later this year. There are also significant opportunities for adding new stores, like the ones they recently opened in Mexico in a joint venture with Home & More SA, and the ongoing expansion already taking place in Canada.  Bed Bath & Beyond’s technology investments also have the potential to drive a significant acceleration in online sales over time, and significantly improve efficiencies and operating margins.

Additionally, it is important to note that Bed Bath & Beyond has financed the entirety of its expansion with its own money, and has no debt.

For all of the above reasons, I just couldn’t resist scooping up some shares of this company at the current price. Based on historical valuation, I believe BBBY shares have an upside potential of at least 30%.

Previous post:

Next post: