Shares of Bed Bath and Beyond (BBBY) were up strongly in the last few trading days as investors poured into the stock following a dip under $55 a share for the third time in the last 45 days.
Reasons BBBY is overvalued at $59 a share:
Goldman Sachs commented:
"We position BBBY as a Sell relative to our coverage, as it has only 6% absolute downside, compared to our covered universe which has on average 4% upside, excluding dividends. The firm is losing share, as margins decline; we believe online share incursions and price image are contributing to this challenge, and that Bed Bath and Beyond's best-in-class visual and item merchandising do not translate well online; margins and sales productivity are still quite close to peak levels; and, acquisitions offer options to gain share, but no clear path."
2. The big jump last Thursday from $56 to $59 a share was due mainly to an upgrade from Oppenheimer, which Goldman has contradicted this morning.
3. Bed Bath & Beyond has been underperforming its rivals: Williams-Sonoma (WSM) and Pier 1 Imports (PIR) which have beaten the Standard & Poor's 500 in the past 12 months, as 2012 is on track to be the industry's best year for sales since 2008. Further, the company has been underperforming its sector by close to 20% in the past year.
4. The company trades at Price to Book Value of 3.27, much higher than the industry average listed by Yahoo Finance as 1.12.
5. In the past earnings conference call, Bed Bath & Beyond guided for a profit of $1.60 to $1.67 per share for the current quarter, and forecasted earnings between $4.48 and $4.54 a share for the full fiscal year. Both ranges were below Wall Street's expectations of $1.75 and $4.62 per share, respectively. Further, more than half of the company's 15% revenue growth came from takeovers, and gross margin contracted to 39.8% from 40.9%, on promotional activity and lower-margin merchandise.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.