Bed Bath and Beyond Still Appears Expensive

| About: Bed Bath (BBBY)
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Business Description: From profile on Yahoo Finance: Bed Bath & Beyond, Inc., together with its subsidiaries, operates a chain of retail stores. It sells a range of domestic merchandise, such as bed linens and related items, bath items, and kitchen textiles; and home furnishings, including kitchen and tabletop items, fine tabletop, basic house wares, and general home furnishings.
Is it a Great Business?
A. Is it understandable? Bed Bath and Beyond (NASDAQ:BBBY) makes money as a retailer of home furnishing and other goods.
B. Is Management Competent and Honest? Consistent growth in revenue and earnings with earnings on assets of greater than 10% makes BBBY an admirable retailer.
C. Does AOB have favorable Long Term Prospects? I don't think it does. The American consumer is in very bad shape, as is the housing market. It is in my opinion that the stresses on both the American consumer and the housing market will take many years before we recover. BBBY as a business should have very low expectations and next to zero expectations for growth going forward. As Americans save a higher percentage of their incomes and pay down debt, which I think is a 10 year process, overall spending will slow if not decline. It does however help that the company has no long term debt.
Is it a Great Price?
With 259.73 million shares outstanding and a share price of $26.37, the market cap is about $6.85 billion. I ask myself this question: If I had $6.85 billion, would I want to buy this company or simply leave my $6.85 billion in the bank? To answer this question, I use the 5 year CD rate to see what my earnings would be over the next 5 years versus what I think BBBY may be able to earn over the next 5 years and compare the difference. I use Average analysts estimates from Yahoo Finance for BBBY's earnings.
I also try to figure out what the potential future value might be for BBBY in 5 years' time. In this case, I believe that there is a chance BBBY will need to close its doors and be liquidated, leaving its shareholders with whatever is left after liquidation. Based on my calculations, BBBY could have a net tangible asset value of $5.361 billion in 2013. This means that the company may be worth $5.361 billion or $20.64 per share, assuming 259.73 million shares are still outstanding in 2013.
But the key question is: If $20.64 is the value in 5 years, what present value and rate of return should I demand? Personally, I'd want at least 10% per year in this current investment environment. In that case, BBBY's fair present value today would be $12.82 per share. (See worksheet.)
Because BBBY is currently being offered by some of the shareholders for $26.37 per share as of April 6th, 2009, it is selling at a high premium to what I believe to be a fair present value. At this price, I am far more likely to either want to sell shares if I had any or consider going short to profit from a fall in share price, assuming my estimates and expectations are correct.

Disclosure: I own April Puts and may short BBBY in the future.