Our update on the Best Stocks for 2021 contest couldn’t come at a better time. Bed Bath & Beyond (NASDAQ:BBBY) just reported first-quarter earnings last week. It gave us an update on the company’s business and a better outlook for the full year. It also tells us that BBBY stock is more than a meme trade.
In early June, BBBY stock rallied more than 60% in a single day, logging more than 100 million shares in volume. Granted, it fell 27.8% the next day, but still, it shows the power that these meme stocks can have once it’s “their turn” to rally.
While the stock has come off those highs, it’s important to realize that this is an investable business. And it’s more than a Reddit trade.
More Than a Meme
Unfortunately, there’s no way around this: Some investors will only look at BBBY stock as a meme trade. The stock got caught up in the Reddit madness in January. And for many investors, that was the first time they really noticed the stock.
In its most recent earnings report, it was a mixed result. Revenue grew 49% year-over-year and beat analysts’ expectations, but earnings missed estimates. It was a weird quarter due to the comp against 2020, when the full impact of the novel coronavirus was being realized. However, if we look past that, the outlook was quite strong.
Management expects Q2 sales between $2.04 billion and $2.08 billion, right around $2.05 billion consensus. Earnings are forecast to be in the range of 48 to 55 cents per share. That’s roughly in line with expectations of 52 cents per share.
For the full year, management raised its expectations from a range of $8 billion to $8.2 billion to a new range of $8.2 billion to $8.4 billion. That’s around the consensus expectations of $8.26 billion. Furthermore, management expects full-year earnings of $1.40 to $1.55 per share, ahead of analysts’ expectations of $1.48 per share.
Moreover, there is perhaps no better excerpt to read in a quarterly press release than this one from CEO Mark Tritton:
“During the quarter, we successfully launched our margin-accretive, customer-inspired Owned Brands and accelerated growth with our Digital First, Omni-Always focus. We are re-establishing our authority in home, recapturing market share and unlocking our full potential. We continue to execute quarter after quarter, and we are pleased to be raising our full year guidance outlook today.”
Breaking Down BBBY Stock
If we take out the “meme-ability” from BBBY stock, why should investors like this name? There are a lot of reasons.
With its $3.1 billion market capitalization, Bed Bath & Beyond is not a huge retailer. In fact, it’s fallen hard from its glory days. However, before the coronavirus began, the company named Mark Tritton as its CEO. From his days at Target (NYSE:TGT), it’s clear that the board is hoping some of Target can rub off on Bed Bath & Beyond.
So far, that seems to be the case. Tritton has put together a multi-year plan, which continues to gain momentum. He continues to shed underperforming brands while focusing on omni-channel and e-commerce efforts. Tritton is working a smaller footprint than Target (obviously), but he’s applying the same catalysts that made Target successful.
The company is free cash flow positive, has more than $1 billion in cash and is profitable. At the midpoint of management’s full-year outlook, the company expects to earn about $1.48 per share. That leaves BBBY stock trading at roughly 22 times this year’s earnings.
Next year, forecasts call for more growth, with $2 per share in profit. Revenue is forecast to fall about 11% this year, as Covid-19 impacted the beginning of the year and as Bed Bath & Beyond sheds its underperforming units. Next year, revenue is forecast to be flat.
When profit is exploding higher and revenue is flat or down, that’s a good sign for margins. Let’s also not forget the company’s buyback program. In the prior earnings report (in February), management increased the company’s three-year buyback program from $825 million to $1 billion.
For a $3.1 billion company, that’s a hefty repurchase program.
Bottom Line on Bed Bath & Beyond
With half of 2021 now gone, BBBY stock is doing incredibly well. Shares are up nearly 68% so far on the year, but it’s hard to guess how the second half will go.
Will the overall market go through a notable dip and increasing volatility? Will BBBY stock get caught up in another Reddit trade? Can management continue to execute?
All of these and likely some unknown catalysts will influence the stock price. But as it stands, Bed Bath & Beyond is moving in the right direction. See you in a few months for another update!
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.