Saturday, November 26, 2005

Eschew the Linens, Buy the Stock: BBBY

We can't tell you how much we enjoy shopping at Bed Bath and Beyond, America's favorite household wares retailer.

BBBY is still hitting all cylinders, in our opinion.

Unlike its peers (some of which have no other choice but to sell themselves out to the private equity guys), BBBY doesn't have to knock down prices in order to boost sales volume.

BBBY can boast about its terrific ROA, respectable margins, and overall sound business model.

In addition, BBBY's inventory turns (a key metric when investigating retail stocks) are a bit higher than normal.

We have a short term $48-$50 price target on shares.

This is strictly a holiday season play with a moderate swing to the upside.

Besides operating retail stores that sell home furnishings--bed linens, bath accessories, kitchen textiles, and cookware -- BBBY owns Christmas Tree Shops.

BBBY's three year top line growth has been very impressive and we believe that the company will continue to impress the Street (although analysts have been a bit unforgiving as of late).

BBBY has enough cash to further it's expansion to markets like China, whose unquenchable thirst for capitalism cannot be ignored.

At 24 X earnings, shares of BBBY are by no means cheap.

Even so, the stock still trades below an industry multiple of 27 X current EPS.

So get cozy: over the next 3-6 months, BBBY may take you beyond your wildest expectations.

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