Short sellers rushing for the exit have to buy shares from the market, which can result in a further rise in the price. If the market goes against the short seller’s position, a heavily shorted stock may rise and force short sellers to cut their losses and exit their positions. Short selling does not always go according to plan. They then sell the borrowed shares and buy them back after the share price has fallen. A trader opens a short position by borrowing a company’s shares in anticipation that it will fall in price. Stock traders can make a profit from the falling price of a security by short selling. What does the future hold for Bed Bath & Beyond? Will there be another BBBY short squeeze? Here we take a look at the stock and the factors affecting its share price movement. Since I’m burdening their earnings with interest here, you could assume the cash on balance sheet is used to repurchase shares instead of debt.The company has also been rocked by the death of its CFO Gustavo Arnal, who has been named as a defendant alongside Bed Bath & Beyond and Cohen in a class action lawsuit for allegedly orchestrating a pump and dump scheme. or 3.6% EBIT margin, which seems pretty reasonable longer term. Pre tax that’s $370mm and adding back interest it’s $440mm.
If you assume they need $2.00 in EPS to justify $14/share, with 136 million shares outstanding they need to earn $272mm. I suspect they’re focused on operating profit growth over gross profit because mirroring Best Buy turnaround, where they deliberately flexed down their gross margins to price match amazon, while leveraging in omni, getting lean on supply chain, reducing store footprint and transitioning to more customer experience oriented value prop.
Given the recent uptick in costs to support channel investment, and guidance for growth in operating profit and EPS next year, this is not an unreasonable expectation. Recent launch of new website should help.Īssume any stabilization, let alone expansion, in gross and/or operating margins, and you’re looking at a potential triple at these prices. Top line comps should breakeven this year, and inflect to growth next year. 80% of comps are in store, decling low to mid single digits.
Remember what happened to Linen and Things?Ĭomps down (0.6%) masks underlying trends. As a value guy myself I can tell you that if margins remained at 3% forever, the stock would be a screaming buy right here. If margins go to zero, and they are approaching zero quickly (EBIT margin now in the 3% range profit margins now ~2%), how do they turn the company around and can they execute? So, it's about margins. Yeah, leases are coming due and they can save some money, but their historical business model is clearly broken and it is going to take money to fix it. Balance sheet is fine S&P is focusing on what everyone else is focusing on: Margins. There has been some nibbles on the stock by the value folks (Bill MIller and Lee Ainslie), but most have avoided it (including myself) because I can't get my head around the cash that the company will produce going forward. If the market had a clue as to when they will stop declining, then you would see the value folks all over this stock. , the problem with the company is its margins.
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