uploads///

Bed Bath & Beyond’s Valuation Multiple Compared to Its Peers

By

Apr. 9 2018, Updated 7:32 a.m. ET

Valuation multiple

Valuation multiples help investors compare companies with a similar business model. We have opted for the forward PE (price-to-earnings) multiple due to the high visibility of Bed Bath & Beyond’s (BBBY) earnings. A forward PE multiple is computed by dividing the company’s stock price with analysts’ earnings estimates for the next four quarters.

The decline in Bed Bath & Beyond’s 3Q17 margins and a weakness in the broader equity market appear to have led to a fall in its stock and valuation multiple. As of April 5, 2018, BBBY was trading at 7.7x compared to 8.9x before the announcement of its 3Q17 earnings.

Article continues below advertisement

From the above graph, you can see that Bed Bath & Beyond is trading below its peers’ median value. BBBY’s EBIT (earnings before interest and tax) margins were lower than its peers’ margins in 2017. That and its negative SSSG (same-store sales growth) have caused the company to trade at a lower valuation multiple than its peers. On April 5, Williams-Sonoma (WSM), Lowe’s (LOW), and Home Depot (HD) were trading at forward PE multiples of 12.3x, 15.9x, and 18.7x, respectively.

Growth prospects

To drive its SSSG, BBBY has been focusing on enhancing the customer experience by implementing digital advancements, renovating its stores, utilizing industry-leading optimization software to improve the efficiency of its supply chains, and implementing various marketing and promotional initiatives. All these initiatives are expected to increase the company’s expenditure. If these initiatives fail to generate expected sales, the increased expenditure will put pressure on the company’s earnings.

For the next four quarters, analysts are expecting BBBY’s EPS (earnings per share) to fall 22.3%, which could have been incorporated into the company’s current stock price. If the company fails to post earnings in line with analysts’ estimates, the selling pressure could bring the stock and its valuation multiple down.

Next, we’ll look at analysts’ recommendations.

Advertisement

More From Market Realist

  • what credit cards can you get without a credit check
    Consumer
    New Program Aims to GEt Credit Cards to People Without Credit Scores
  • Man going into a tax preparation office
    Consumer
    Should I File a Tax Extension Before the Tax Deadline?
  • Thai Airways plane
    Consumer
    Thai Airways (TAWNF) Is Risky, Best to Avoid the Penny Stock
  • A "now hiring" sign outside a Popeyes restaurant, one sign that employers are having trouble finding employees willing to work for current wages.
    Consumer
    Why Employers Are Struggling To Fill Jobs Despite High Unemployment
  • CONNECT with Market Realist
  • Link to Facebook
  • Link to Twitter
  • Link to Instagram
  • Link to Email Subscribe
Market Realist Logo
Do Not Sell My Personal Information

© Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.