Monday, 22 August 2016

Bed Bath and Beyond, Serious Underperformance, Why? Part 1

This will be a short initial post as I'm up north over the weekend and not near a computer.

Bed Bath and Beyond is intriguing for one simple reason, and that reason is, it appears cheap across a variety of conventionally accepted metrics, P/E, EV/EBITDA, P/S, P/FCF, etc. All metrics appear to be pointing in the same direction. Additionally, BBBY, scores highly on my pseudo Greenblatt screener, and has consistently scored highly in Greenblatt's own magicformulainvesting d-base.

So, when all valuation metrics point the same way and a stock seriously underperforms over a long enough time period to confound anyone relying on relative cheapness as an investment thesis, I wonder what's wrong. Maybe, just maybe, there's something more going on beneath the surface to allow the conditions of relative cheapness and relative underperfomance to perpetuate.

I suppose the contrarian view here is that BBBY should (in theory) close any relative valuation gap at some point, considering the furious rallies shares in other companies (deeply cyclical, and more recently, other retailers, etc.) demonstrating nowhere near BBBY's earnings power have enjoyed during 2016, while BBBY has basically done nothing.

I leave this initial post with a comparative performance chart of BBBY from the company's 2015 10k, illustrating the extent of underperformance over the last 5 years. The question I have is, what is the company going to do in order to invoke enough investor confidence to close this relative underperformance gap?











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