With the wild fluctuations in monetary policy sending a chill against consumer sentiment, embattled retailers like Bed Bath & Beyond (NASDAQ:BBBY) appear on the verge of suffering even worse damage. Indeed, the final nail in the coffin may be rising interest rates. With borrowing costs ballooning, demand in the housing market naturally slipped, leading to serious long-term questions regarding BBBY stock. I am bearish on the home-décor retailer.
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Frankly, nothing in the price chart suggests that BBBY stock is worth betting on for anyone other than extreme gamblers. Even then, the wager seems unnecessarily risky. Since the start of this year, BBBY stock has fallen 77%.
On the financials, the picture does not improve one bit. For its latest quarter ended August 2022, Bed Bath & Beyond posted revenue of $1.44 billion. This figure slipped almost 28% against the year-ago period’s tally. It also missed Wall Street’s consensus forecast of $1.47 billion.
On the bottom line, the retailer disclosed a loss per share of $3.22. This compared very unfavorably to the consensus target of -$1.79. Also, the net loss nominally came out to $366 million. In the year-ago quarter, the company posted a net loss of $73 million.
To be fair, Bed Bath & Beyond is in the middle of an aggressive turnaround plan. Still, with BBBY stock continuing to absorb heavy hits – it’s actually down 80% in the past five years – the underlying firm appears well short on time. Given the extreme do-or-die nature, investors should consider alternative market ideas.
Additionally, on TipRanks, BBBY stock has a 1 out of 10 Smart Score rating. This indicates strong potential for the stock to underperform the broader market.
BBBY Stock Gets Bad News from the Housing Market
Aside from the issuing company’s terrible financial profile, the main negative catalyst for BBBY stock centers on its outside fundamentals. Put simply, the enterprise can’t catch a break. From meme trades gone wrong to the shocking passing of the retailer’s former CFO, BBBY attracts a dark cloud. However, the worst indirect headwind could be the housing market.
When inflation ballooned to historic highs beginning late last year, the Fed faced an unenviable decision – either raise the benchmark interest rate now and incur significant near-term pain or do nothing, paying the piper sometime down the road. However, because the consequences of the latter “action” might be catastrophic, the central bank took its poison immediately.
Subsequently, the sharp lift in borrowing costs eventually arrested the erosion of the dollar’s purchasing power. With the Fed reducing the size of its balance sheet, liquidity effectively becomes constrained relative to prior norms. As a result, fewer people want to buy homes as they make less sense in a deflationary environment.
Unfortunately, this high-level current will likely snowball substantial headwinds for BBBY stock. Primarily, with fewer homebuyers available (as rising mortgage rates price out much of the remaining prospective purchasers), less incentive exists to buy home décor products.
Even more problematic for BBBY stock, rising interest rates also substantially reduced business incentives for growth. Again, with capital becoming more expensive, companies have focused on battening down the hatches. In turn, several industries – particularly the tech sector – initiated or are considering layoffs.
Since largely good jobs are being impacted by the headcount cuts, the narrative for discretionary retail purchases will likely diminish. That’s just not going to be too helpful for BBBY stock.
Poor Quantitative Metrics
If the headline print undergirding BBBY stock wasn’t enough to dissuade exposure to the retailer, the quantitative metrics would almost surely send rational investors rushing for the exits.
Although income-statement-related stats garner the most attention, prospective investors must consider the balance sheet. For BBBY stock, it’s poor and likely to worsen over the next few quarters. For instance, the company’s cash-to-debt ratio is 0.04x, ranked worse than nearly 92% of the competition. Also, its equity-to-asset ratio sits at -12.4%, one of the ugliest metrics in the cyclical retail segment.
However, no one should dismiss the ugliness of the income statement because it’s incredibly problematic. For instance, the retailer’s three-year revenue growth rate sits at -4%. Also, its book-value-per-share growth rate is 54% in the red during the same period.
On the bottom line, both its operating and net margins have likewise slipped into negative territory. Along with its crimson-stained return on equity, those seeking positives in the numbers won’t find them – unless they’re willing to suspend all disbelief.
Is BBBY Stock a Buy or Sell, According to Analysts?
Turning to Wall Street, BBBY stock has a Strong Sell consensus rating based on zero Buys, two Holds, and seven Sell ratings. The average BBBY stock price target is $4.19, implying 20% upside potential, nonetheless.
Takeaway: All Signs Say “Run”
As optimistic people, it’s easy to understand Americans’ general hesitation toward abandoning ship on BBBY stock. However, the signs to exit are everywhere. From internal woes to outside pain points, most investors should probably stay well away from Bed Bath & Beyond.
