Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Bed Bath & Beyond Inc. (BBBY - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Bed Bath & Beyond has a trailing twelve months PE ratio of 6.5. This level compares pretty favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.
If we focus on the long-term trend of the stock the current level puts Bed Bath & Beyond’s current PE among its lower zone, very near its 5-year low of 6.2x. Hence, we could infer that the stock is undervalued in this respect, especially in light of its historical trend. Thus, the present level seems to be a suitable entry point for the stock from a PE perspective.
Further, the stock’s PE compares favorably with its industry’s trailing twelve months PE ratio, which stands at 14.4. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Bed Bath & Beyond has a P/S ratio of about 0.3. This is lower than the industry average, which comes in at 0.8x right now.
If anything, BBBY is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Bed Bath & Beyond currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Bed Bath & Beyond a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the P/CF ratio (another great indicator of value) for Bed Bath & Beyond comes in at 4.4, which is far better than the industry average of 8. Clearly, BBBY is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Bed Bath & Beyond might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of B and a Momentum score of F. This gives BBBY a Zacks VGM score—or its overarching fundamental grade—of A. (You can read more about the Zacks Style Scores here >>).
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Bed Bath & Beyond seems to have pretty striking prospects.
Meanwhile, the company’s earnings estimates have been trending downward lately. The current quarter has seen no estimate go higher in the past sixty days compared to 10 lower, while the full year estimate has seen no upward revisions and 11 downward revisions in the same time period.
This has had a small impact on the consensus estimate though as the current quarter consensus estimate has remained constant over the past two months, while the full year estimate has inched down 0.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Bed Bath & Beyond Inc. Price and Consensus
Despite this somewhat negative trend, the stock has a Zacks Rank #2 (Buy) on the back of its strong value metrics and this is why we are expecting above-average performance from the company in the near-term.
Bed Bath & Beyond is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, its sluggish industry rank (among the Bottom 7% out of more than 250 industries) somewhat dims the sparkle. In fact, over the past two years, its industry has clearly underperformed the broader market, as you can see below:
Notably, Bed Bath & Beyond has been reeling under sluggish mall traffic that has been intensifying with increasing shift toward online shopping. Also, margins have been pressurized for four quarters now, owing to increased expenses. Additionally, the company's global presence keeps it exposed to currency woes.
Nevertheless, Bed Bath & Beyond is focused on strategic initiatives like e-Commerce enhancement and improvement of customer services, as is also evident from its recent store realignment plan. Also, comps from customer-facing digital networks grew over 20% in the last reported quarter. Additionally, the company’s capital initiatives and constant shareholder-friendly moves should draw investors’ attention.
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>