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.

Bed Bath & Beyond Inc. (BBBY) Is Still Attractive Despite Run-Up

Bed Bath & Beyond Inc. (NASDAQ:BBBY) is up nearly 8.5% since the start of the year, but the company’s long-term operating history and recent initiatives suggest that the stock has a lot more appreciation potential in the year ahead.

Bed Bath & Beyond Inc. (BBBY)

Efficient Operator

Bed Bath & Beyond sports the highest operating margin in its peer group despite selling its products at a similar price point.

The company is able to achieve this feat due to its superior sales productivity; it has more sales per square foot than Williams-Sonoma, Inc. (NYSE:WSM) and Pier 1 Imports, Inc. (NYSE:PIR). The company’s liberal return policy deserves a lot of the credit for high sales per square foot; customers who come in looking for just one item often leave with multiple items because returns are so generous. This also creates loyal customers.

In addition to high sales productivity, Bed Bath & Beyond Inc. (NASDAQ:BBBY) has also shown a knack for efficient merchandising. The company’s defensive products, such as linens, towels, and cookware, offer protection from downturns in cyclical products like those closely related to the housing market.

Bed Bath & Beyond is finally investing in its website to better compete with Williams-Sonoma’s vast e-commerce presence. The company has additional growth opportunities in Canada and Mexico that will be aided by its e-commerce build-out.


Williams-Sonoma represents Bed Bath & Beyond Inc. (NASDAQ:BBBY)’s challenge to long-term prosperity. Williams-Sonoma has a large presence on the internet — nearly 40% of its sales are made online. Its internet segment is the fastest-growing part of the business. It will be difficult for Bed Bath & Beyond to ever catch up with Williams-Sonoma’s online presence.

Pier 1 poses a smaller niche threat to Bed Bath & Beyond. Pier 1 is pursuing a much narrower merchandising strategy that does not scale as well as Bed Bath & Beyond’s. In addition, Pier 1 does not have the same product diversification that allowed Bed Bath & Beyond and, to some extent, Williams-Sonoma to weather the recession relatively unharmed. As a result, Pier 1 does not pose a serious existential threat to Bed Bath & Beyond in its current form.


Since 2002, Bed Bath & Beyond Inc. (NASDAQ:BBBY) has averaged a 46% pre-tax return on tangible invested assets (defined as tangible assets minus cash). The company’s return has nearly always been above 51% except during 2007-2009.

However, for purposes of valuation, I will assume a pre-tax return on tangible invested assets of 40% going forward. This is to account for hiccups in the e-commerce renovation as well as lower-than-expected returns on its recent acquisitions.

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.