Can Bed Bath & Beyond Stock Turn Around Its 19% Dip?

Bed Bath & Beyond's stock is trading with 19% loss for 2014, due to fears that lower comparable-sales growth and margin pressure could mean an end to the company's growth era. That said, Bed Bath & Beyond has made efforts to improve in many areas of weakness. While its first quarter was horrific, the company's ability to overcome obstacles was put on display during its second quarter. All things considered, 2015 might look considerably different for Bed Bath & Beyond stock.

Reasons to expect a turnaround
Bed Bath & Beyond is a brick-and-mortar retailer that carries a wide array of products for bedrooms, bathrooms, and more rooms, including household appliances, personal care items, and knickknacks. While Bed Bath & Beyond's stock performance has been up to par with the Dow Jones during the last five years, 2014 has been anything but a walk in the park for shareholders.

Like other brick-and-mortar retailers, such as Wal-Mart , growth has not come easy for Bed Bath & Beyond. During its first quarter, comparable-store sales grew just 0.4%, while selling, general, and administrative costs were nearly 27.5% of total sales. However, in the company's most recent quarter, comparable sales grew 3.4%, while its selling, general, and administrative costs declined to less than 26% of total sales.

In a difficult retail environment, Bed Bath & Beyond's fundamental performance is rather impressive. While Wal-Mart and Bed Bath & Beyond aren't exactly peers, the two companies sell many of the same kinds of products and, because of Wal-Mart's size, it's a good company to gauge overall retail conditions.

Wal-Mart's first- and second-quarter comparable-sales growth were flat year over year. Also, in looking at the amount of cash that both companies generate from operations, Bed Bath & Beyond's operating cash flow is 12.3% of its total revenue during the last 12 months; Wal-Mart's is less than 5% during the same period.

One might conclude that Bed Bath & Beyond is a faster growing, more profitable company than Wal-Mart, but it is also a cheaper stock. While Wal-Mart trades at nearly 14 times next year's expected earnings, Bed Bath & Beyond trades at only 12 times next year's earnings, thanks in part to its large stock losses in 2014.

Reason to expect accelerated top-line growth
If operational efficiencies and solid growth weren't enough, Bed Bath & Beyond has also made investments that are in the best interests of shareholders, which further add to the notion that Bed Bath & Beyond's stock losses are only temporary. Specifically, the company has invested in e-commerce infrastructure with new concepts like, better customer service, and data analytics, to learn about its consumers.

Currently, about 3% of Bed Bath & Beyond's revenue is created from e-commerce; but, according to eMarketer, online sales of furniture and home furnishing products is expected to rise from $17.7 billion in 2012 to $31 billion in 2016. In the same period, health and personal care sales are expected to increase from $11 billion to $19 billion. All these are industries in which Bed Bath & Beyond thrives. As a result, Canaccord Financial believes that Bed Bath & Beyond can increase its e-commerce revenue to 10% of total revenue by the end of fiscal 2015.

With management expecting increased sales performance during the final two quarters of this year, it's likely that e-commerce will play a large role.

Foolish thoughts
All things considered, Bed Bath & Beyond is an efficient company, with the potential for accelerated growth that just so happens to be bundled into a cheap stock. In fact, management's belief that Bed Bath & Beyond is  attractively valued may have played into the company buying back $1.3 billion worth of stock during its fiscal year thus far; it even raised $1.5 billion in debt to do so. In the July press release announcing a $2 billion share repurchase authorization, the company said the board "authorized this new share repurchase program based upon its continued confidence in our Company's long-term growth potential, financial outlook and cash flow generation."

Bed Bath & Beyond has already turned around its rough first-quarter performance. There's a good chance that the stock's near-20% losses this year will turn around, as well.

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Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond. 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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