Monday, December 26, 2005

Personal Foul: Clowns Downgrade BBBY

The boys over at Morgan Keegan downgraded house favorite Bed Bath & Beyond (BBBY) over the holidays.

Looks like someone super-spiked their egg nog because BBBY is ridiculously cheap.

The stock is about where it was four years ago. Since then, sales have doubled and profits are up about 150%.

Lest you forgot, we pounded the table and advised readers to load up just 4 weeks ago today:

America's favorite household wares still hitting all cylinders...Unlike its peers, 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.

BBBY has enough cash to further it's 19 X earnings, shares of BBBY trade way below an industry multiple of 27 X current EPS. 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.
Clearly, we were wrong in thinking analysts would soften up on BBBY. When BBBY missed sales forecasts last week, shares got slammed after analysts across the Street started crying 'valuation concern' once more.

Yes, Bed Bath & Beyond was getting beaten up by a "strong promotional retail environment" -- but that won't last forever. Wal-Mart's a formidable contender, yet it won't demolish the niche Bed Bath & Beyond dominates. And Linens 'n Things (LIN) is a sick joke -- we gave the store a visit just last week and found the place utterly repugnant.

Bed Bath and Beyond's a consistent performer that's now dirt cheap -- the stock's oversold.

Don't forget they still have close to $1 B in cash and zero debt.

Wall Street needs to be psychoanalyzed because it's dysfunctional: a company slows down its growth a tad bit, and investors punish it severely. We believe that over the long term, shares of BBBY will return to the $40s.

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