Bed, Bath & Beyond (BBBY) used to be one of the top stocks during the 1990s. From 1993-2002 the company grew very rapidly. BBBY grew profits 32% a year and the stock kept pace, rising 31% per year. Alas, as the company got larger the profit growth eventually slowed. Now BBBY is considered to be an 11% grower. Perhaps stock buybacks and solid execution can push profit growth to 15% a year, but that would be tough.
BBBY is a great stock to buy-and-hold because it grows profits almost every single year. Since 1993 the company has only had one down year of profits. That was in 2008. Profits rebounded the next year to a new all-time high, so that’s no big deal.
Let’s look at BBBY now:
One Year Chart
The stock has had a nice run in 2013 like many Blue Chip stocks have. In my 2012 Q4 notes (from 12/31/12) I see the stock was $56, had a P/E of 11, and an estimated long term growth rate of 12%. Since BBBY has a high degree of certainty and consistency I thought it was worth 14 times earnings, or $71 a share. The upside of 26% was good, and I should have bought the stock.
Now BBBY has a P/E of 15, and is above $70 a share. The upside has evaporated.
Fair Value
BBBY is $77 now and has a 2013 Fair Value of $75. Next year I see the stock going to $84, that’s not enough upside.
Sharek’s Take
Like most Blue Chip stocks BBBY was on sale at the beginning of the year, went up in price, and is now selling where it should. Also, like most Blue Chips the 2014 upside is low and the stock isn’t ripe for purchase. I’ll keep up with the BBBY data and look to get in if the stock gets down to 11 to 12 times earnings, which is $60 or below.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
