If you're a fan of retailers as an investment, you've probably had trouble standing beside your good vibes. A multitude of companies have reported significant slowdowns in growth and have watched their share prices slide. Seemingly capped by JC Penney (JCP) alarming quarterly report in which the company even went as far as to eliminate its dividend payout, Bed Bath and Beyond (BBBY) came forward last week and only added to the escalating fear.
The report put forward by the company was disturbing to shareholders and future guidance, not surprisingly, was one of immense caution. Along with a miss in the all important sales number, the company set guidance for the second quarter between $0.97-$1.03 or below the $1.08 that had been anticipated.
However, the numbers weren't all bad. Earnings for the current quarter did beat by four cents and the company still maintains a better and more solid footing than the majority in the sector. While others, such as JC Penney, brace for possibly more quarterly losses, Bed Bath and Beyond still maintains solid growth even if it's not quite to the degree most were looking for.
Also, with the company not offering dividend payouts, the retailer is able to step aside the need to appease shareholders on a quarterly basis. For the sector as a whole in a time in which consumers are spending cautiously, quarterly dividends can be a killer for both growth and expansion.
That expansion, by the way, also should give investors some sense of confidence. Despite the pronounced slowdown in sales, Bed Bath and Beyond plans to open 40 more stores this year. A very positive sign considering a plethora of other big name retailers such as Best Buy (BBY) are looking to close stores.
With Bank of America (BAC) maintaining the stock a buy with a $75 price target, or 20% above the current price, the chancres of a short term bounce remain convincing. Even JC Penney, which temporarily bottomed three days after reporting its quarterly loss, resumed to recover 10% over the following 10 days.
With all that considered below are two ways to profit from the stock's recent fall.
- Take the Short Term Bounce: It will typically take a stock three to four days to turn positive after such a negatively accepted earnings report. However, that rush to take advantage of short term dips should also spare the stock from the rocky week ahead for global markets. Also, with still some positives within the company's report, once the selling does fade the stock could easily add 10-12% quickly.
- Go Long: With the stock trading near all-time highs before the disappointing report, you could easily make the case that shares were doomed even before earnings were announced. At such lofty valuations, investors expect company reports to be flawless and bail at the first sign things are not quite as pristine. All the while leaving those looking at the long term growth rates and excellent entry point.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.