Bed Bath & Beyond: Bleak Outlook, but There’s Value
Stock Analysis & Ideas

Bed Bath & Beyond: Bleak Outlook, but There’s Value

Shares of brick-and-mortar retailer Bed Bath & Beyond (BBBY) have been on the painful retreat of late, now down around 70% from its 52-week highs hit back in the summer of 2021, when meme stock hype was the talk of the town. Now that a majority of meme stock investors have moved on, I think there’s compelling value to be had for value investors who are in it for the long haul.

Many investors have thrown in the towel, as the firm has failed to pivot in the move towards e-commerce. Indeed, it’s a long way off from BBBY stock’s all-time high of around $80 per share. At writing, the stock is off near 80% from the top, and it may take years, if not decades, to recover to such a level.

Still, investors should focus on the road ahead, not the one behind. Despite yet another painful quarter in the rear-view mirror alongside a bleak outlook and a somewhat confusing plan, it’s really hard to get behind the stock, even with many valuation metrics in the pits. On a price-to-sales (P/S) basis, it’s hard to get any cheaper, with BBBY stock going for 0.2 times sales.

With many analysts turning their back to the former meme stock, the odds that Bed Bath & Beyond is a value trap do certainly seem high. While Warren Buffett’s cigar-butt investing approach isn’t for everybody, I do think that the old-time brick-and-mortar retailer has a few more puffs left in it.

Still, there could be far more pain on the horizon before Bed Bath & Beyond can move beyond its latest slate of troubles. For that reason, I am neutral on the stock.

Yet Another Underwhelming Quarter for the Home Products Retailer

Investors were not expecting much from Bed Bath & Beyond going into its third quarter. Yet, somehow, the firm still managed to run face-first into the low bar that it should have easily leaped over. Analysts were expecting zero in the way of per-share earnings.

Instead, the company served up a $0.25 per-share loss. It wasn’t a surprise to hear the firm was suffering from supply chain woes, just like most other retailers during 2021. As supply chain woes are ironed out in the new year, one has to think that relief could be on the way.

Still, management seemed keen on playing it safe by reducing its full-year guidance even further. Now, the company expects breakeven to be on the high end of its guidance, a far cry lower from the previous $1.10.

This isn’t the first time management downgraded its per-share earnings guide. And it may not be it’s last. It’s been disappointing for value investors, to say the least. With a new top boss at the helm, though, there is reason to be optimistic over a potential turnaround.

BBBY’s New CEO Has Been Making the Right Moves

CEO Mark Tritton has been very busy making moves to turn a corner. Cutting away at debt and bringing costs into control are just some of the many efforts the firm has been putting in. While the alleviation of COVID-19 headwinds may be a relief for the firm post-Omicron, questions surround the firm’s digital sales channel.

The e-commerce platform could improve further, but at the end of the day, Bed Bath & Beyond is a brick-and-mortar store at heart. Many of the firm’s home goods are best tried in store before purchasing, after all. That may be a slight edge for the firm once COVID-19 pressures and supply chain problems begin to fade.

Wall Street’s Take

Turning to Wall Street, BBBY stock comes in as a Moderate Sell. Out of 12 analyst ratings, there is one Buy, five Holds, and six Sell recommendations.

As for price targets, the average Bed Bath & Beyond price target is $13.41, implying downside potential of 17.2%. Analyst price targets range from a low of $9.50 per share to a high of $19.00 per share.

The Bottom Line on Bed Bath & Beyond Stock

For now, Bed Bath & Beyond is a show-me story. While the stock is trading at a rock-bottom multiple, shares can easily get cheaper if the downgrades keep flowing in and the company continues reporting wider-than-expected losses.

While the last quarter was nothing to write home about, I do think there were some modest positives. Still, I’d much rather wait for further evidence of a turnaround and perhaps, a guidance upgrade for a change before I’d consider buying.

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