Summary
- Activist shareholders are discussed.
- Long-term EPS guidance update is not given enough weight.
- Capital allocation strategy is questionable.
- Ultimately, it's unquestionably undervalued.
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This article was originally sent out to my marketplace subscribers.
Bed Bath & Beyond (BBBY) has a lot going for it. Right off the bat, it's very cheaply valued. It has a rock-solid balance sheet. It's very free cash flow generative.
On the other hand, its management team is appalling. Shareholder activists are involved, in the hope of shaking up the business. While I don't expect these activists to succeed, I very much believe that shareholders should be able to clear 50% from the present trading valuation of $2.5 billion.
Activist Shareholders - Does It Matter?
Despite making headlines of owning approximately 5% of Bed Bath & Beyond, the activist don't actually own that much of the common stock, as a significant portion of the common is only beneficially owned via long-dated call options.
Of course, this is not the end of the world, as you will hopefully know that I was highlighting Bed Bath & Beyond meaningfully before the activists became involved, as I feverishly believe the stock is undervalued. Why am I bringing this up?
