Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Barnes & Noble, Inc. (BKS) Is Not Doomed

2. Barnes & Noble can close all of its un-profitable stores in order to generate profitability. You will often find that stores in certain locations will be able to generate profits while others won’t. Economics often refers to this phenomenon as locational monopoly. But, don’t look too deep into the terminology. The thesis is a lot simpler, the fact is Barnes & Noble can cut out all of its under-performing book stores in order to generate a profit from its low-growth book store concept.

Source: Barnes and Noble

Barnes & Noble generated substantial growth in its Nook division. In fact, both Barnes & Noble College and Nook are generating substantial sales growth. The Barnes & Noble College division has been able to generate reasonable revenue growth due to book sales on college campuses. University campuses aren’t going out of business any time soon, and it is likely that a certain population of college students will continue to buy books from the campus book store regardless of how much more expensive it is to buy books on campus. According to Sallie Mae, enrollment is projected to increase by a total of 11% between 2011 and 2020. This increase in enrollment is a positive factor that should add to Barnes and Noble’s book sales through its College campus division. Sallie Mae is a major student loan provider, and its analysis on future student enrollment is likely to be highly accurate. After all, who would know better than the biggest student loan bank?

Barnes & Noble’s business portfolio will become even more impressive due to its advances into the self-publishing space. While extremely similar to Amazon’s self-publishing platform, Barnes & Noble will give authors book space on its virtual platform for the Nook. According to Investor’s Business Daily:

Nook Media on Tuesday launched Nook Press, a self-publishing platform that gives authors a free way to write, edit, collaborate and publish e-books and directly distribute them to readers through the new Nook service.

Nook Press will generate additional revenue to Barnes & Noble and could contribute significantly to future growth, especially during a period when Barnes & Noble is cutting costs aggressively in order to generate profits for shareholders. The company will eventually carve a niche where it can generate substantial profits without sacrificing revenue.

I anticipate the company to report an EPS figure that will beat analyst expectation by 37%. Analysts on a consensus basis have quarter one earnings estimates at -.94 per share, I estimate earnings at -.62 per share. The stock could justify a higher valuation in future years due to cost-cutting in its retail business unit along with earnings growth in its Nook business unit.

The article Barnes & Noble Is Not Doomed originally appeared on Fool.com and is written by Alexander Cho.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.