Is the Dip in Bed Bath & Beyond Shares offering a Buying Opportunity?

Bed Bath & Beyond

Bed Bath & Beyond (NASDAQ:BBBY) shares: Tumbling financial numbers and fading future fundamentals pulled almost 70% of value from Bed Bath & Beyond share price in the last three years. BBBY stock currently trades around $20 a share after bottoming around $16 at the beginning of this month.

Bed Bath & Beyond
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While some investors believe BBBY stock has hit bottom and is set to move higher in the days to come, market analysts have maintained a negative view about Bed Bath & Beyond’s future fundamentals. Wells Fargo, for instance, initiated coverage of BBBY with the Underweight rating, citing margin pressure as the major headwind for the company.

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Tumbling Financial Numbers Don’t Offer Support to Share Price

Bed Bath & Beyond’s future fundamentals are bleak, at least in the short-term. The company’s financial numbers aren’t offering support to its share price. BBBY revenue increased only 0.4% Y/Y in the first quarter this year, whereas comparable sales dipped 0.6% compared to analysts’ estimate of a growth of 0.2%.

Bed Bath & Beyond
Source Image: seekingalpha.com

The company’s earnings per share also declined to $0.32 from the $0.52 per share it was selling for this time last year. The company blamed lower margins and fierce competition for the significant drop in earnings per share.

Outlook is Unstable

Bed Bath & Beyond expects its revenues to grow slightly this year and in fiscal 2019. However, its earnings per share are likely to extend the declining trend in the following quarters. During the earnings conference call, BBBY confirmed that its earnings per share could fall to $2.00 per share in FY 2019, down sharply from the earnings per share of $3 in fiscal 2017.  

Bed Bath & Beyond
Source Image: morningstar.com

Although its share price valuations are trading well below the industry average, the stock is unlikely to receive support from lower valuations amid concerns over diminishing margins. Its dividend growth is also at risk amid increasing payout ratio and fumbling earnings. Its payout ratio based on income stands around 50% at present, which could grow to 70% next year considering an expected decline in earnings. This is because it would be difficult for Bed Bath & Beyond’s management to make a robust increase in its dividends.

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