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Shares of Bed Bath & Beyond (BBBY) are now trading at $29.72. This is the lowest the stock has been in the last five years.

I'm not a believer that the housing market is having a severe impact on its business. There is some impact, but it's easy to overstate.

The company’s quarterly sales growth numbers have been pretty stable for the past three years, each quarter coming in around 10%-14%.

BBBY is a remarkably efficient company. Gross margin usually run in the low 40% range. Operating margins have slipped a bit from 15% to 13%, but that’s to be expected. Net margins are down from 10% to about 8.5%. Both are higher than they were during the run-up in housing prices.

There’s a big difference is a slowdown in earnings growth and losing a lot of money. Now let’s look at some of the homebuilder.

Lennar (LEN) will see its EPS drop from $8.32 two years ago to $-4.90 this year. DR Horton (DHI) will drop from $4.62 to $-2.27. KB Home (KBH) will drop from $9.53 to $7.61.

Basically, BBBY's return-on-equity has fallen from about 24% to around 20%, yet their shares have fallen by one-third. Compare 20% ROE to the 10-year T-bond that's now paying about 4%.

Posted by edelfenbein at November 26, 2007 12:37 PM