How Does BBBY’s Valuation Multiple Compare with Peers?
We have opted for a forward PE (price-to-earnings) multiple due to high visibility in Bed Bath & Beyond’s (BBBY) earnings. The forward PE multiple is calculated by dividing BBBY’s stock price by analysts’ EPS estimates for the next four quarters.
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BBBY’s forward PE multiple
The lower-than-expected 1Q17 same-store sales growth (or SSSG) and EPS have lowered investors’ sentiment, leading to a fall in the company’s stock price and its valuation multiple. As of September 12, 2017, BBBY was trading at a forward PE multiple of 7.3x compared to 7.8x.
From the above graph, we can see that BBBY is trading below its peers’ median value. The company’s EPS has fallen in the last five quarters. Also, the company has posted negative SSSG in four of the last five quarters, which has led the company to trade at lower valuation multiples. On the same day, BBBY’s peers, Williams-Sonoma (WSM), Lowe’s (LOW), and Home Depot (HD) were trading at a forward PE multiple of 13.2x, 16.1x, and 20.2x, respectively.
To improve its customer experience, BBBY has been focusing on improving its online product assortment, content, and its search and navigation system. All these initiatives along with marketing and promotional activities have increased BBBY’s expenses. If these initiatives fail to generate expected sales, the increased spending is expected to put pressure on the company’s earnings.
For the next four quarters, analysts are expecting BBBY’s EPS to fall 7.5%, which could have already been factored into BBBY’s current stock price. If the company fails to meet analysts’ estimates, the selling pressure could bring the company’s stock price and its forward PE multiple down.
Next, we will look at analysts’ recommendations.