Catalysts:
Closing stores will lower SG&A and Capex, leading to better margins in the long-term
Much of losses iin recent years have been impairment of goodwill and did not affect cash flows
Cash from divestitures
Using cash to buyback shares ($625 million in FY21)
With 26% of shares outstanding short and 58% of float short, there is the possibility of a short squeeze
Risks:
Target of speculators
Business in decline
Revenues will fall as more stores close
Financial Analysis:
Valuations:
My personal Biases:
Invested in GameStop in 2019 and profited from the short squeeze, doesn’t see the same catalysts with BBBY
Assumptions:
Using Discounted Owner’s Earnings to calculate the intrinsic value
Using company estimates for FY21 revenues
Revenues declining by 5% p.a till 2025
Operating cash flow margin of 4%
CapEx gradually declining
Discount rate of 15%
Terminal growth rate of 0%
Margin of safety of 30%
Exit Multiples based on P/OE Ratio
30% of shares outstadning repurchased by 2025
Owner’s Earnings 20% higher in 2025 in bull case and 20% lower in 2025 in bear case
Conclusion
Overvalued
Investing because of a possible short squeeze without any fundamentals is just speculating