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Williams-Sonoma, Inc. (WSM), Pier 1 Imports, Inc. (PIR), Bed Bath & Beyond Inc. (BBBY): This Retail Giant’s Turnaround Is Real

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I like to invest in companies that have been trading near their lows for a long time and are now witnessing a change in public sentiment. Such companies offer compelling risk to reward ratios as they come at an undervalued price. The S&P 500 might be making new highs, but shares of Bed Bath & Beyond Inc. (NASDAQ:BBBY) are still well below their 2012 peak ($61.81 at the time of writing this article). This is an opportunity for the investors to get into the stock to rake in some hefty profits. Let’s assess why.

Williams-Sonoma, Inc. (NYSE:WSM)

Improving Housing Market

The housing market recovery picked up steam in the final three months of last year, with prices rising at an annual rate of 7.3%, according to S&P Case-Shiller. Even during the tough five years for the housing market the company managed to grow earnings by 10.5% annually, thus it stands to reason as household formation returns to historic numbers Bed Bath & Beyond Inc. (NASDAQ:BBBY) should see revenue growth rise as well.

Compelling financials

Analysts expect the company to earn about $5 per share in the fiscal year ending February 2013. So at the current stock price Bed Bath & Beyond Inc. (NASDAQ:BBBY) is trading at about 12.2x forward earnings, which is one of its lowest P/E ratios in the past decade. Analysts expect the company to grow earnings by 14.5% in the future. Thus, this combination of low P/E and double digit expected growth makes this stock a compelling buy.

The company has a robust balance sheet with no net debt and some $750 million in net cash. The company had announced a new $2.5 billion share repurchase program which would amount to buying back about 20% of outstanding shares and would increase the expected $5 EPS in FY 2013 to $6 of EPS.

Versus Competitors

Bed Bath & Beyond Inc. (NASDAQ:BBBY) faces direct competition from Williams-Sonoma, Inc. (NYSE:WSM) and Pier 1 Imports, Inc. (NYSE:PIR). In my view Bed Bath & Beyond has an upper hand against its competitors. Bed Bath & Beyond’s forward P/E of 12.2 looks attractive when compared to Williams-Sonoma, Inc. (NYSE:WSM)’s P/E 16.25, Pier 1 Imports, Inc. (NYSE:PIR)’s P/E of 16.67 and industry average of 14.68.

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