The No. 1 Home Goods Stock To Buy Now

buyers and sellersMarshall Hargrave:  The retail space has gotten increasingly competitive over the last half decade. Part of that is the rise of the e-commerce market, which has already claimed the likes of Circuit City and Radio Shack.


And e-commerce has recently been causing a lot of pain for investors in home goods stocks.

Over the last three months, shares of Bed Bath & Beyond (NASDAQ:BBBY) are off 15%, Pier 1 Imports (NYSE: PIR) is down 40% and The Container Store (NYSE:TCS) is down 36%.

The two companies holding up relatively well are Williams-Sonoma (NYSE:WSM) and Restoration Hardware (NYSE:RH). The two are down just 7% and 3%, respectively, for the year.

Still, the industry is enticing, especially when you consider the top home goods stock. You have strong tailwinds, like a strengthening housing market and rising employment, to support the industry.

Home goods retailers can hold their own going forward as well, where shoppers are still showing a preference for visiting physical stores to shop for items like linens, cookware and end tables.

So, which is the best home goods stock?

The Pier 1 Imports valuation appears compelling on the surface, but it’s in a rough spot, with margins that are near the bottom of the industry. The Container Store is in a similar position.

Both Restoration Hardware and Williams-Sonoma are relatively expensive from a valuation standpoint, trading at a price-to-earnings ratio of 42 times and 23 times, respectively.

But watch Williams-Sonoma, as it does have opportunities with international growth, which could juice earnings relatively quickly. Williams-Sonoma gets over half its revenues from high-margin e-commerce channels. It’s also one of the few home goods stocks to offer a dividend, with a history of dividend increases too.

The Top Home Goods Stock

Bed Bath & Beyond, which is cheap at just 11 times earnings, has the best margins in the industry and is still generating 20% return on invested capital. Helping drive the stock down of late has been earnings constraints from technology and e-commerce investments. Its quest to offer competitive pricing hasn’t helped earnings, but it is helping the company hold its market share.

But Bed Bath & Beyond still has an opportunity to capture more of the e-commerce and omni channel market. This includes focusing more on ways for the customer to purchase than just in-store and buy-online-and-ship, such as making online shopping appointments, reserving products online, picking up products in-store and buy online then return to store.

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