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Choosing Between Bed Bath & Beyond Inc. (BBBY) and Comstock Resources, Inc. (CRK)

Bed Bath & Beyond Inc. (NASDAQ:BBBY) shares are down more than -20.46% this year and recently increased 2.46% or $0.42 to settle at $17.49. Comstock Resources, Inc. (NYSE:CRK), on the other hand, is up 12.29% year to date as of 05/15/2018. It currently trades at $9.50 and has returned 32.13% during the past week.

Bed Bath & Beyond Inc. (NASDAQ:BBBY) and Comstock Resources, Inc. (NYSE:CRK) are the two most active stocks in the Home Furnishing Stores industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect BBBY to grow earnings at a -14.90% annual rate over the next 5 years. Comparatively, CRK is expected to grow at a 20.00% annual rate. All else equal, CRK’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 60.6% for Comstock Resources, Inc. (CRK). BBBY’s ROI is 11.40% while CRK has a ROI of -0.20%. The interpretation is that BBBY’s business generates a higher return on investment than CRK’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. BBBY’s free cash flow (“FCF”) per share for the trailing twelve months was +1.82. Comparatively, CRK’s free cash flow per share was -1.65. On a percent-of-sales basis, BBBY’s free cash flow was 2.07% while CRK converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, BBBY is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. BBBY has a current ratio of 1.80 compared to 1.20 for CRK. This means that BBBY can more easily cover its most immediate liabilities over the next twelve months.

Valuation

BBBY trades at a forward P/E of 8.79, a P/B of 0.83, and a P/S of 0.20, compared to a P/S of 0.46 for CRK. BBBY is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. BBBY is currently priced at a -1.52% to its one-year price target of 17.76. Comparatively, CRK is -18.1% relative to its price target of 11.60. This suggests that CRK is the better investment over the next year.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. BBBY has a beta of 0.99 and CRK’s beta is -0.02. CRK’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. BBBY has a short ratio of 5.41 compared to a short interest of 2.00 for CRK. This implies that the market is currently less bearish on the outlook for CRK.

Summary

Comstock Resources, Inc. (NYSE:CRK) beats Bed Bath & Beyond Inc. (NASDAQ:BBBY) on a total of 9 of the 14 factors compared between the two stocks. CRK generates a higher return on investment, is more profitable and has lower financial risk. In terms of valuation, CRK is the cheaper of the two stocks on an earnings and book value, CRK is more undervalued relative to its price target. Finally, CRK has better sentiment signals based on short interest.

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