10-Minute Investment Autopsy No. 14: Bed Bath & Beyond
It worked! Or did it?
If you haven’t read the guide to the 10-Minute Investment Autopsy series, you can find it here.
The Original Thesis
Who: Mario Cibelli
When: June 2006
What: Bed Bath & Beyond (ticker: BBBY)
The Thesis:
Great business with very high ROIC
Grew from 38 stores in 1992 to 740 stores in 2005
Stores are well-merchandised and the company doesn’t spend a lot of money on advertising
Franchises like Bed Bath & Beyond and Walmart are more sustainable than other retailers in the past
Company has $1B of net cash and will probably generate another $1B in FCF over the next 2 years
Company still has years of growth ahead of it, with a potential for 1,200 stores in 5 years
Other retail concepts, Christmas Tree Shops and Harmon Stores, provide additional growth potential
Major competitor, Linens ‘n Things, went private and has lots of debt, making it weaker
Thinks that stock returns will at least match the mid-teens earnings growth that he expects to see going forward
Also sees potential for valuation multiples to expand
These are the highlights of Bed Bath & Beyond’s then-recent financials up to the point when Mario was presenting his thesis:
This is the stock chart up to the time when Mario presented his thesis:
Pause here. Think through the thesis and the facts and decide what you agree with, what you disagree with and whether you would invest based on the information available.
What Happened (Just the Facts)
Bed Bath & Beyond stock meaningfully beat the market, with the stock increasing at ~12%+ per year over the 5-year period, compared to the market at 3%
However, the longer-term performance is a completely different story. But before we get to that, let’s go through the autopsy of why the stock did so well over the 5-year period after Mario presented his thesis
There is a lot more to the case:
The Autopsy - the reasons for what happened
The Lessons that you can apply to your own investing
Discussion Questions for you to think about and discuss with other thoughtful investors in the weekly case thread