Pier 1 Imports Inc (PIR), Target Corporation (TGT): One of the Few Remaining Bargains in Retail

In the current bull market, much of the market is at or near 52-week highs, with many hitting record levels. The retail sector has done especially well in 2013, with increasing optimism about the employment situation in the U.S. as well as increased consumer confidence, which should lead to increased discretionary spending. As a result, the S&P Retail Index is up over 25% since the beginning of the year, and many retailers have performed even better than that. In times like these, investors need to be extra selective in order to find the elusive bargains that remain. One of my current favorites in the retail sector is Bed Bath & Beyond Inc. (NASDAQ:BBBY), and let me tell you why.

Profile

With just over 1,000 stores, Bed Bath & Beyond Inc. (NASDAQ:BBBY) is a leading chain of home accessories stores, and also operates several other brands. The company has grown tremendously over the past two decades, increasing their store count from 34 to 1,004 in that time period, in addition to completing several key acquisitions. Most notable were the 2003 purchase of Christmas Tree Shops ($194.4 million), the 2007 purchase of buybuy Baby ($67 million) and the 2012 acquisition of Cost Plus ($495 million), a company that is known for its World Market chain of stores.

Bed Bath & Beyond Inc. (NASDAQ:BBBY) is not quite done just yet. The company has a long-term goal of 1,300 locations in the U.S. and plans to aggressively grow its presence in Canada over the next few years.

What surprises me is that after all of this aggressive growth, the company has a complete lack of debt. All of its recent growth, including the purchase of Cost Plus for almost half a billion dollars, was completely done with cash that was already on the company’s balance sheet. This is very impressive and is one of the best signs of healthy growth in a long-term investment prospect.

Still Cheap in a Land of Expensive Retailers

At just 15.2 times last year’s earnings, Bed Bath & Beyond Inc. (NASDAQ:BBBY) is trading at a significant discount to its peers, as you’ll see in the “alternatives” section below. For the current fiscal year (2014), the company is projected to earn $5.00 per share, rising to $5.61 and $6.28 in FYs 2015 and 2016, respectively. This means that the analysts following the company expect an average annual earnings growth rate of 11.2% over the next three years, which is excellent for a company with a low P/E and no debt at all.