After a Huge Rally YTD is Bed Bath and Beyond Stock Still a Buy?

Based in New Jersey, Bed Bath & Beyond Inc. (BBBY) operates a chain of retail stores. The company sells domestics merchandise, textile products, amenities, and other goods to retail shoppers and to institutional customers in the hospitality, cruise line, healthcare, and other industries. It offers products through various websites and applications, such as bedbathandbeyond.com, bedbathandbeyond.ca, harmondiscount.com, facevalues.com, and others.

BBBY has witnessed deepening recognition and engagement by  its customers. It added more than 2.2 million new online customers under its core Bed Bath & Beyond banner in the third quarter. With a new management team taking over the company's brand and marketing management recently, we believe BBBY’s shares have enormous upside because the team is expected to significantly improve the company’s sales, reduce costs, enhance digital offerings and outline solid business management plans in the near term.

BBBY’s  consistency regarding the execution of its growth strategy and improved financial performance have allowed it to gain 197.8% year-to-date. This impressive performance combined with several other factors has helped BBBY earn a Buy rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates BBBY:

Trade Grade: A

BBBY is currently trading higher than its 50-day and 200-day moving averages of $21.83 and $14.53, respectively, indicating that the stock is in an uptrend. In fact, the stock’s 120.3% return over the past three month reflects  solid short-term bullishness.

BBBY’s digital comparable sales under its core Bed Bath & Beyond banner grew 94%, while total enterprise digital comparable sales increased 77% for the quarter ended November 28, 2020.

The company’s gross margin increased 340 basis points year-over-year to 36.5%. And its  gross profit increased 4.7% from the year-ago value to $956.57 million over this period.

On January 19, BBBY announced the completion of the sale of Cost Plus World Market to Kingswood Capital Management, a private equity firm. The move should streamline BBBY’s portfolio and help it fund its business transformation and generate more cash. The company  also announced the appointment of two new strategic marketing leaders - Kristi Argyilan as Senior Vice President (SVP), Brand Innovation and Jim Reath as SVP, Marketing. This change should  improve  BBBY’s customer insights and foster the development of new strategic partnerships.

Buy & Hold Grade: D

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, BBBY is not well positioned. The stock is currently trading 37.6% below its 52-week high of $53.90, which it hit on January 27. This can be attributed in part  closings that are a  part of the company's network optimization initiative.

Peer Grade: C

BBBY is currently ranked #32 of 66 stocks in the Home Improvement & Goods group. Other popular stocks in this industry are iRobot Corporation (IRBT), Williams-Sonoma, Inc. (WSM) and Kirkland’s, Inc. (KIRK)

While KIRK beat BBBY by gaining 1913.4% over the past year, WSM and IRBT returned 101.2% and 199.7%, respectively, over this period.

Industry Rank: A

The Home Improvement & Goods industry is ranked #3 of 123 StockNews.com industries. The companies in this industry sell domestic merchandise, building supplies, lumber, hardware, home improvement products, home furnishings, goods & accessories, and home-related services.

With people spending most of their time at home over the last year amid the COVID-19 pandemic, there has been a surge in demand for domestic furnishing products. Given that home improvement spending has been on a long steady rise, it is not too surprising that U.S. homeowners are on track to spend more this year. Moreover, rock-bottom interest rates are also expected to make home improvements more attractive.

Overall POWR Rating: B (Buy)

BBBY is rated Buy due to its impressive financials, solid price momentum, and underlying industry strength as determined by the four components of our overall POWR Rating.

Bottom Line

BBBY is poised to soar in 2021 despite gaining 197.8% year-to-date. The company has been witnessing strong customer response due to its digital-first and contactless delivery service offerings amid the pandemic. In addition,  investors’ bullishness about the company’s new brand and marketing management and its ability to execute a successful transformation of the company could push its shares even higher. Analyst sentiment, which gives a good sense of a stock’s future price movement, is good for BBBY. It has an average broker rating of 1.82, indicating favorable analyst sentiment. Of 13 Wall Street analysts that rated the stock, 4 rated it a “Strong Buy.”  A consensus EPS estimate of $0.11 for the quarter ending May 31, 2021 represents  a 105.6% improvement year-over-year. The consensus revenue estimate of $1.87 billion for the next quarter represents an 34.6% increase from the same period last year.

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BBBY shares rose $7.59 (+22.56%) in premarket trading Friday. Year-to-date, BBBY has gained 127.98%, versus a 0.62% rise in the benchmark S&P 500 index during the same period.

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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