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Sean passed the CFA level I examination administered on June 7, 2014.
  • A Warren Buffett-Ish Company, Bed Bath And Beyond (BBBY) 0 comments
    Feb 4, 2014 1:19 AM | about stocks: BBBY

    One company that meets many of Warren Buffett's investment screening criteria is Bed Bath & Beyond (NASDAQ:BBBY).

    Warren Buffett likes to invest in companies with little to no debt and consistent growth in book value. Take a look at (BBBY)'s 10 year financial history. Since 2004, it has grown its common equity from $2 billion to over $4 billion, approximately 8% annualized, which is not all that impressive, were it not for the fact that (BBBY) has managed to do this through one of the worst economic recessions in history and without the use of long term debt. In fact, (BBBY) does not have any long term debt on its balance sheet, nil, and has had a squeaky clean balance sheet for the past ten years.

    Even more impressive is (BBBY)'s growth in cash flow. Warren Buffett loves to invest in or acquire companies that generate lots of cash which can either be reinvested back into the business if it earns a high rate of return on its capital or-if Warren pleases-can be reemployed in another one of Berkshire Hathaway's businesses at an even higher rate of return. (BBBY)'s annual cash flow has grown from $484 million in fiscal year 2004 to over $1.2 billion in fiscal 2013, a nearly 11% annualized growth rate. In 2004, (BBBY) was selling for (had a market capitalization of) between $6.3 billion and $9.4 billion, or on average about 16 times that year's cash flows of $484 million. Today, at around $63.00 per share, (BBBY) is selling for only around 11 times its 2013 cash flow of $1.2 billion.

    Warren Buffett has said it is difficult for the long term growth in a company's share price to outperform its long term return on equity. (BBBY)'s ROE has averaged more than 22% over the last ten years, with an average return on assets above 15%. (BBBY)'s share price has grown accordingly at 17.8% compounded annually since January, 1993, handily outperforming the SPY (the S&P 500) by 9.3% and the NASDAQ 100 composite index, of which it is a member, by 6.5%. Although (BBBY) is not currently priced to generate explosive returns, it is near its 52 week low and at the right price, it would be a highly certain and profitable investment.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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