Bed Bath & Beyond (BBBY)

BBBY has one of the strongest financial underpinnings in the retail world, let alone the home furnishings market. Bed, Bath, and Beyond has almost doubled their store base without taking out a penny of debt over the last 5 years. Free cash flow has historically been about 9% of revenue and increased 11% per year. Gross and operating margins had steadily improved up to 2007. The 5-year average return on tangible capital is 65% - an astounding figure for retail, which requires large amounts of hard capital investment. In fact, even during the grim retail environment for home furnishings during the end of 2008, while BBBY's main competing all-home-furnishings retailer Linens N' Things has ended in liquidation, BBBY has held out against economic pressures.

Bed, Bath, and Beyond has traded at a P/E multiple in the mid-20s historically. Today it’s at 13. The problems are not company specific. The historic housing slump and credit crunch hit the company directly in its gut.

The company estimates that the U.S. can support 1,300 stores. From the current count of 860, that’s still a 34% potential increase in stores. The company also recently opened its first and only Canadian store, an untapped market. And last, its smaller concepts have miniscule reach and can likely be expanded to several multiples of their current store count.