Consumers looking to purchase items for their homes such as curtains, pictures, dishes or towels have the luxury of being able to comparison shop at several high profile, convenient chain stores such as Wal-Mart (NYSE: WMT), Target (NYSE: TGT), Kmart (Nasdaq: SHLD) or Bed Bath & Beyond (Nasdaq: BBBY), to name just a few. But some say that because so many chains offer these types of items for the home, it may be difficult for any one chain to really stand out. I generally agree with that argument. But I am still bullish on the home space, and I think the pie is big enough for many of these players to ultimately succeed. With that in mind, today I'd like to touch on Bed Bath & Beyond, which I think has solid upside potential in the coming months.

IN PICTURES: How To Make Your First $1 Million

Why Bed Bath Could Go Above And Beyond
Again, the above-mentioned discounters have the potential to generate a great deal of interest and are formidable competitors in almost any sense. But that doesn't mean that Bed Bath & Beyond can't do well. In fact, its performance has been fairly impressive in the face of this economic malaise. For example, data show it has beaten Wall Street estimates in every one of the last four quarters. And I'm convinced that when the economy really improves, it can bring big profits to the bottom line. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)

Advertisement - Article continues below.

According to CNBC, the company is expected to release its third-quarter earnings January 4, and the estimate for the period is 42 cents. I think the company has a solid shot of beating that 42-cent number by a couple of cents and possibly more. Again, its recent history of exceeding expectations leaves me bullish, as does my feeling that consumers are starting to loosen their purse strings when it comes to spending money on their homes and other items they view as substantial assets.

Finally, while Bed Bath & Beyond isn't the cheapest stock on Wall Street as it trades at about 20 times this year's estimate, it is interesting to see that the company is expected to grow at a more than 11% rate per annum in the next five years, which I feel would be good for an organization of its size. I think the stock would be more fairly valued in the low- to mid-$40s range.

The Momentum Factor
I tend to be more of a value investor that seeks out bargains as opposed to a momentum investor. However, there is an old saying on Wall Street that makes sense which says, "The trade works until it stops working." And no matter how you slice it, Bed Bath's stock has been performing and now trades near its 52-week high. I think some institutional investors may jump on stocks near their highs as the year comes to a finish, because let's face it, everyone likes to be involved in a winning situation. I also feel that stocks trading near their highs aren't likely to be sold this year en mass because of the potential tax implications.


Other Players
Of the aforementioned companies, the only one I am reluctant to hop aboard is Kmart. In the grand scheme of things, I think what the company has is not as good when compared to the other two. I also think that Target and Wal-Mart carry such huge and diverse selections at low prices, and are so convenient and aesthetically attractive, they will be destinations of choice for shoppers. Target and Wal-Mart trade at 14.8 times and 15.2 times their current year estimates, respectively.

Bottom Line
All things considered, I'm a bull on Bed Bath & Beyond. It has a good shot of beating expectations in the quarter that will soon be announced. The company is generating a sizable amount of profit during this slowdown, and it could generate substantially more when the tough times abate. (Read Analyzing Retail Stocks to learn about the most important metrics to look at when analyzing retail stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!