Here we go again. Home goods retailer Pier 1 Imports Inc (NYSE:PIR) reported quarterly numbers, and they were bad. Again. The guidance was bad. Again. And Pier 1 stock dropped sharply. Again.

It has been a long fall from the top for PIR stock. Around five years ago, this was a $25 stock.

Now, it trades under $3.

There is a reason for that. PIR continues to disappoint. Sales and margins are under pressure thanks to e-retail competition  from the likes of Amazon.com, Inc. (NASDAQ:AMZN) and Wayfair Inc (NYSE:W).

In fact, that pressure has been so large that PIR just cut its dividend, suspended its buyback program, and launched a three-year turnaround plan which will significantly weigh on near-term margins.

But, there is a light at the end of tunnel for Pier 1 stock. Yes, there is a ton of risk that the company just disappears over the next several years. But if they don’t (and there is a really good chance they don’t ), then Pier 1 stock could more than double from current levels.

Here’s a deeper look:

The Risks

Pier 1 may very well one day be thrown into the box of companies that couldn’t survive in today’s omni-channel retail environment.

PIR used to post consistently positive comparable sales growth. But then e-retail went mainstream, and platforms like Amazon and Wayfair started stealing market share from Pier 1. At the same time, Pier 1’s comparable sales growth went from consistently positive to consistently negative.

That isn’t a coincidence. Consequently, there is a serious risk that PIR will fail to execute its turnaround strategy and continues to be gobbled up by e-retail giants.

The worst part about this is that margins, which are already significantly depressed, are about to head way lower thanks to the company investing in order to change. If those investments don’t pay off, Pier 1 will be looking at big losses with no light at the end of the tunnel.

In that scenario, Pier 1 stock could fall even further.

The Upside

That negative sentiment, however, feels largely priced in at current levels.

Management believes that if these turnaround efforts pan out, then sales growth and margins will rebound. All together, management thinks earnings can get to around $0.65 in three years.

In other words, PIR is a sub-$3 stock that could net earnings per share of $0.65 in three years. A market-average 16-times forward multiple on those $0.65 earnings in three years implies a two-year forward price target of over $10.

In other words, if the company’s turnaround efforts materialize as expected, then this stock could more than triple from current levels over the next two years.

Even if they don’t materialize as expected, this stock could still explode higher. Realistically, I don’t think that $0.65 in earnings per share is doable in three years. But I think $0.50 is doable in five years. A market-average 16-times forward multiple on that implies a four-year forward price target of $8, which is more than double the current stock price.

Thus, so long as things get marginally better for Pier 1, the stock could explode higher because the valuation is so depressed, the sentiment is so negative, the expectations are so low, and the stock is so beaten up.

The Bottom Line on Pier 1 Stock

Pier 1 stock isn’t without risk at these levels. The company could very well be completely Amazon-ed within the next 3-5 years.

But I don’t think so. Plus, the stock is priced in such way that taking a chance on the company’s turnaround efforts seems like a good bet.

As such, I’m a buyer of PIR stock on this big dip. Below $3, PIR stock has exceptionally favorable risk-reward asymmetry.

As of this writing, Luke Lango was long PIR and AMZN.