Is Bed Bath and Beyond Stock A Buy?

Bed Bath and Beyond Inc (NASDAQ:BBBY) is one of three companies that experienced massive gains from Redditors so far in 2021. The retailer is one of the most heavily shorted stocks on Wall Street, with approximately 70 percent of its shares shorted.

Retail investors (individuals like you and I, as opposed to institutional investors) are rallying behind it, but is Bed Bath & Beyond stock a Buy?

The company’s stock was in decline for the back half of the 2010s, and its most notable achievement in the 2020s so far is ending a partnership with MyPillow.

It happened after controversial MyPillow CEO Mike Lindell was seen entering the White House with notes outlining what seemed to be a government takeover plan in the wake of the Capitol riots. Somehow the retailer found itself a key 2021 battleground between activists with investments and activist investors.

Can BBBY cover its rising market cap or will its investors have the wool pulled over their eyes?

Bed Bath and Beyond Closed 200 Stores

Bed Bath and Beyond is an American retail chain specializing in home goods for your bedroom, bathroom, and beyond. It was founded in 1971 and is headquartered in Union, New Jersey. The company’s branded stores are known for a wide selection of quality home furnishings.

The store is frequently listed on wedding registries, as it often carries everything a new couple needs to start their lives together.

As time went on, the company expanded horizontally by purchasing a variety of stores, including Buy Buy Baby for $67 million in 2007 and Cost Plus, Inc in 2012 for $495 million. Each specialty store serves a different market.

Retail got pummeled in 2020, and the company struggled to regain and maintain its old highs. The holiday season brought back some of its luster, but it’s the Reddit short squeeze that defines its 2020s.

Consumers are increasingly moving online for home furnishings. Studies from both UBS and IBM showed the industry is struggling, and 11,280 home furnishing stores are expected to close by 2025.

Bed Beth and Beyond closed 200 stores across 29 states in the back half of the year. That’s the bottom 21 percent of the company’s stores, which CEO Mark Tritton estimates will save the company around $300 million a year.

This has analysts split on whether Bed Bath and Beyond is a worthwhile investment.

Is Bed Bath and Beyond Stock A Buy?

Bed Bath and Beyond started 2021 with its share prices on a slow decline since the holiday season. Its market cap was just above $2 billion until subreddit /WallStreetBets stepped in. The community rallied around three of the most shorted stocks on the street, and BBBY made the list for a short squeeze.

The price drove up through the month of January, and the company’s market valuation was hovering around $4 billion by month end. It’s a minimally less vicious short squeeze than what GameStop Corp. (NYSE:GME) experienced.

However, there are other market factors at play. Loop Capital raised its price target from $18.00 to $30.00 while maintaining its Hold rating. The stock surged to trade in the $30.00-$35.00 range soon after.

Some analysts also believe less experienced retail investors bought BBBY – they mistakenly thought they were buying shares of BlackBerry (NYSE:BB) by conflating the stock symbols. Of course, that’s simply speculation – one would have to be almost actively avoiding due diligence to make such a mistake.

Nevertheless, when Elon Musk tweeted he was moving from WhatsApp to Signal, shares of Signal Advance – an unrelated company – skyrocketed 1,000% so such mistakes are certainly possible!

The company turned in relatively low earnings in its most recent quarter at $0.08 EPS. That represented 2 percent growth from same store sales and 77 percent digital growth compared to the same quarter in 2019. And it has $2.2 billion in total liquidity to get last through the next phase of the slowing economy.

Its digital strategy is paying off, and the company had $244 million in positive cash flow in its most recently reported quarter. Unlike GameStop, the pricing of BBBY makes sense and is fueled more by optimism than an internet forum flame war.

Dividend investors also appreciate the 2.53 percent annual dividend yield. However, its last $0.17 quarterly cash dividend was paid in early 2020.

BBBY Share Price Is No Slam Dunk

The stagnating economcy wreaked havoc on brick-and-mortar retail, especially in the home furnishings category. Pier 1 closed 450 stores, while Art Van closed 200, and Sur La Table shuttered 56.

In fact, Pier 1 has already filed for bankruptcy in February 2020 when the market was at its hghs. 

The biggest problem these retailers face is the rising online competition. Tech-based startups are figuring out innovative ways to save on shipping furniture. Mattress companies like Purple, Tuft & Needle, and Casper, sofa companies like Article, Joybird and Burrow, and more are muscling in on the competition.

Even Amazon (AMZN) and Home Depot (HD) are looking for a piece of the company’s pie.

Online Brands A Major Threat To BBBY Stock

Bed Bath and Beyond has a wide footprint, but its biggest draws are wedding and baby registries. It needs to focus heavily on targeting these markets. It’s the one place it can beat big retailers like Walmart (WMT) and Target (TGT), along with online competitors.

Beyond that, the company is simply facing too much competition. Every category it has a strong presence in is saturated. For example, its World Market imprint sells couches, but so do Wayfair, Ashley Furniture, Ikea, Pottery Barn, and La-Z-Boy.

If unemployment doesn’t pick up though, there may be more people without homes to furnish.

Is Bed Bath & Beyond Stock A Buy? 

Bed Bath and Beyond is an American home furnishing retailer that owns stores across a variety of brands. Each focuses on serving specific markets and most specialize in gift registry products. This positions it in a lane that retailers from Target (TGT) to Home Depot are trying to get into.

Still, the company has a strong cash flow and made the necessary operational moves to maintain its margin. As shoppers go online, it’s finding ways to reach them with new social distance purchase options.

People will always get married and have babies, and BBBY is a great stock to cash in on it. But its turbulent pricing may scare off investors with lower risk appetites.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.