Looking For a Trade in Bed, Bath and Beyond (BBBY)

Jun.21.06 | About: Bed Bath (BBBY)

The name says it all. Bed Bath is now truly Beyond making people money. Since Jan 2002, investors in this lazy stock have made no money. The store, where I shop frequently, has seen increasing earnings and sales, but no growth in market cap. It has the same multiple as Wal-mart (NYSE:WMT) and Target (NYSE:TGT) despite being 1/4th the size of Target and 1/20th the size of Walmart.

While the stores are brighter, with higher-end items and is often first to market with newer products, Bed Bath and Beyond (NASDAQ:BBBY) has failed to impress analysts in the past few years despite meeting or beating estimates. Part of this could be their extremely customer-friendly attitude (read investor unfriendly). Giving cash in exchange for bridal registry gifts, accepting returns and handing out full price on items without receipts and giving away 20% off coupons has lured customers into their stores, but kept margins low. I can't remember the last time I went to a BBBY store without one of those coupons. After discounts, their prices are even lower than Target. Add higher paid employees to the mix and you can understand how this company is better for customers and the people that work there, but not for investors.

But wait - there is more. Increased competition from online stores like Overstock (NASDAQ:OSTK) and Smartbargains, along with a brick and mortar show down with Linens-n-Things (which went private last year), are more reasons to be bearish on this stock.

Moreover, in my opinion, they have lost customers and market share to Target (TGT), which now has a Starbucks in almost every store and has upgraded their merchandise to include brands like Calphalon, Cuisinart and Kitchenaid, which were previously almost exclusive to BBBY and Linens-n-Things. Unless management makes some radical changes to attract investors, the stock could be flatlined for a while.

BBBY has attempted to break out of its range between 34 and 47 a few times, specially post a few earnings releases, but failed to do so with conviction. With so much going against it, it's a wonder this stock has traded sideways for this long.

At these levels, the stock is extremely cheap and carries almost no risk. For long term risk averse investors, this stock makes sense. For investors with short term horizons of 6-12 months, a strong earnings report could boost the stock quickly into the low 40's, but then the inevitable fallback will occur, so I would only look for a quick trade here - nothing more.