Bed Bath & Beyond (NASDAQ:BBBY) stock plunged in early 2020 alongside the rest of the retail sector as the novel coronavirus pandemic shut-down the U.S. economy, killed consumer spending and forced the company to close all of its stores.
BBBY stock started 2020 at $17 a share. Today, the stock trades around $7.
That means it’s time to buy the dip in this beaten-up retail company for a potentially enormous turnaround over the next 12 months.
The bullish turnaround thesis on BBBY stock broadly breaks down into three ideas:
The U.S. economy is on the verge of not just reopening, but a big and swift recovery, powered by strong consumer spending trends which will provide huge tailwinds for all retailers, Bed Bath & Beyond included; Led by innovative and widely-respected new CEO Mark Tritton, Bed Bath & Beyond is making all the right moves to modernize itself, improve margin profiles, and stabilize both relevancy and market share in the dynamic U.S. retail landscape; and Bed Bath & Beyond stock is dirt cheap at current levels. Even minor sales and profit trend improvements will spark a huge turnaround rally in BBBY stock.
A Rebounding U.S. Economy
Covid-19 was as big and as serious of a crisis as this country has faced, arguably ever. Yet, almost as quickly as the pandemic emerged and crippled the U.S. economy, it will disappear and spark an enormous economic recovery.
Simply consider the following:
- The science surrounding Covid-19 has gradually shifted. The most recent data suggests that the virus is not as deadly as initially feared. Rather, it’s only slightly more deadly than the common flu for most individuals under the age of 50;
- Given shifting science, pandemic hysteria is fading. The number of Americans that categorized themselves as “extremely worried” about Covid-19 has dropped from 28% in late March, to 23% in late May, according to a Statista survey;
- The economy is gradually reopening. States such as Arizona, Georgia, Florida, and Texas are getting back to “business as usual;”
- The economic reopening has illustrated that there is ample pent-up demand from consumers. Beaches and restaurants were very crowded this past Memorial Day weekend, and malls have reported strong early reopening traffic trends; and
- Consumer confidence levels have already bottomed, at surprisingly high levels (about double where they bottomed in 2008/09), despite ugly labor market conditions because most consumers who were fired during the pandemic (87%) anticipate their layoff will be temporary.
All in all, it appears that not only is the U.S. economy on the cusp of a massive reopening, but also a massive consumer-spending-fueled rebound. If so, those trends will provide huge tailwinds for all retailers over the next few months, Bed Bath & Beyond included.
An Impressive Turnaround
Bed Bath & Beyond is in the midst of what could turn into one of the most impressive turnarounds in retail history.
For years, Bed Bath & Beyond did too little to adapt to changing times across the retail landscape. The company failed to develop a strong e-commerce business. They didn’t build out robust omni-channel commerce capabilities. They maintained a large number of brick and mortar stores, relied too heavily on promotions to drive sales and did little to improve the in-store shopping experience.
All of that’s changing today. Bed Bath & Beyond brought in a new CEO, the widely respected Mark Tritton, and Tritton has in turn brought on a whole new management team. This team plans to:
Revamp stores; Rightsize the real estate footprint; Invest in e-commerce and build out omni-channel capabilities like BOPIS (buy-online, pick-up-in-store); Significantly reduce operating expenses; and Retool the supply chain to improve gross margins.
Over the next few quarters, if Tritton can successfully pull off this turnaround against the backdrop of resurgent consumer spending, then BBBY stock could fly higher.
A Surging Stock
In fact, if everything goes right, BBBY stock could grow by more than 350% over the next few years.
Bed Bath & Beyond hasn’t reported positive comparable sales growth since 2015. Gross margins haven’t expanded since 2012. And net income hasn’t risen since 2013.
Accordingly, BBBY stock is one of the cheapest retail stocks in the world. The stock trades at less than 0.1-times trailing sales.
But now the retailer is taking all the right steps to ensure that starting in 2021, the company will report consistently positive comparable sales growth, expanding gross margins, and steady profit growth.
If this all works out, BBBY stock will surge over the next few years, powered by both profit growth and multiple expansion.
My numbers suggest that $2 in earnings per share is doable for Bed Bath & Beyond by fiscal year 2025. Based on a market-average 16-times forward earnings multiple, that equates to a 2024 price target for BBBY stock of $32 — more than 350% higher than where shares trade hands today.
The Bottom Line on BBBY Stock
It’s time to buy the dip in Bed Bath & Beyond stock.
Macroeconomic factors are turning favorable. The company’s turnaround is gaining momentum. And the stock is dirt cheap.
Connecting the dots, BBBY stock is positioned for huge gains over the next 12 months and beyond.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not own a position in any of the aforementioned securities, but may initiate a long position in BBBY within the next 72 hours.
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