This Stock Faces Destination Destruction

I've had an open bearish CAPScall on bookseller Barnes & Noble (NYS: BKS) since March 2010. Its latest quarterly results give plenty of reason to continue to believe this stock is destined for destruction (of shareholder value, at least).

Last week, Barnes & Noble reported a "surprise" quarterly loss; apparently, analysts expected this struggling company to turn a small profit. Its second-quarter net loss ended up being $6.6 million, or $0.17 per share, compared to a net loss of $12.6 million, or $0.22 per share this time last year.

Total quarterly sales decreased 0.6%, as did same-store sales. This disappointing showing included what theoretically could have been an extremely beneficial element: bankrupt Borders' liquidation, which helped offset the decline in physical book sales, but clearly not enough. Although Barnes & Noble could boast that its comps surged 10.9% during the Black Friday hypershopping holiday weekend, again, Borders isn't around to compete anymore. Also, this performance is largely in line with how other bricks-and-mortar stores performed over the weekend.

One thing Barnes & Noble possesses that Borders didn't is a viable e-reader product. Barnes & Noble's Nook tablet has received plenty of accolades, and one piece of good news Barnes & Noble could share was the 85% increase in Nook-related sales, to $220 million. Still,'s (NAS: AMZN) Kindle and the scorching-hot Kindle Fire product pose a serious competitive challenge to Barnes & Noble's future and continue to lap the Nook with regards to total units sold.

Investors may not want to buy at its current nosebleed multiples, but they should certainly fear it if they own shares of some of the companies it disrupts, like, you guessed it, Barnes & Noble. Amazon's revelation of red-hot Kindle sales on Black Friday gives even more reason to worry about Barnes & Noble's future.

Barnes & Noble, like Best Buy (NYS: BBY) , should consider Amazon its worst competitive challenge right now. Although both also compete with discount retailers such as Wal-Mart (NYS: WMT) , Target (NYS: TGT) , and Costco (NAS: COST) , all of which peddle similar wares at low prices, has a way of offering more for less and far more conveniently.

I closed my "underperform" CAPScall on Borders in October, after three years, +97 points added to my CAPS score, and the stock's plunge from $6.50 to a (post-bankruptcy) price of $0.02 per share over those years. Although I'm not predicting outright bankruptcy for Barnes & Noble, I don't foresee anything close to a bright future for its shareholders. That's why I'm keeping my "underperform" call on the surviving bookstore stock in place.

Barnes & Noble is facing the fast-moving evolution of e-books and Amazon's formidable mastery of the art of disruption. The bookseller may be able to survive, but investors should have far higher expectations for their stocks' future growth.

At the time thisarticle was published Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Best Buy, Wal-Mart Stores, and Costco Wholesale. Motley Fool newsletter services have recommended buying shares of Costco Wholesale, Wal-Mart Stores, and Motley Fool newsletter services have also recommended writing covered calls in Best Buy. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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