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What on earth has happened to the Baby Bunting Group Ltd share price?

The Baby Bunting Group Ltd (ASX: BBN) share price has tumbled another 5.1% today, although that makes up only part of the pain shareholders in the retailer are likely feeling.

Investors who bought into the Baby Bunting float late in 2015 purchased their shares for $1.40 and watched joyfully as their shares marched as high as $3.21 in August 2016. But the shares have collapsed more than 36% in the time since and are fetching just $2.05 today.

Source: Google Finance

Source: Google Finance

Baby Bunting is a retailer that specialises in all things babies, including prams and cots as well as toys, food and clothing, to name a few. Founded in 1979, the company has grown to be one of the biggest retailers of its kind in Australia, operating 40 stores with a plan to get to more than 80. It will likely open another three stores by the end of the financial year, with a target of four to eight new store openings each year.

Although the company has experienced strong sales – including same-store-sales (SSS) growth of 8.2% during the first half – investors have cooled on the business. For one, it has guided for mid-single-digit SSS growth for the full year, which would imply a slower second half. You can compare that to its historical SSS growth in the chart below:

Source: Baby Bunting presentation

Source: Baby Bunting presentation

As it stands, analysts are, on average, forecasting Baby Bunting to deliver 11 cents in earnings per share this financial year, according to Yahoo! Finance. That number steps up to 13 cents per share for FY 2018. At its peak share price, Baby Bunting was therefore trading at around 30x current estimates for earnings this year, while it is still trading at 18.6x forward earnings even after its share price slide.

By way of comparison, other retailers such as JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN) are currently trading on forward price-earnings multiples of 13.7x and 14.3x respectively (as per Yahoo! Finance figures).

Baby Bunting’s shares aren’t cheap, particularly with the threat of businesses such as Amazon.com (NASDAQ: AMZN) expanding its Australian presence and potentially threatening margins across the entire retail sector. Thus, although Baby Bunting does have long-term growth prospects, investors need to be careful with the price they’re willing to pay to be part of that growth.

A Big, Fat, Fully Franked Dividend

This company's dividend is almost the stuff of legends. Since it started paying dividends in 2007, it has increased its payout to shareholders every single year, a run that includes 21 consecutive dividend increases.

Based on the last 12-months of dividends, its shares are currently offering a fully-franked 4.8% yield, which grosses up to almost 7% when those franking credits are included. And in stark contrast to the likes of Commonwealth Bank and Telstra, this company just increased its dividend by over 13%, and guided for 2017 profits to grow by 20%!

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Amazon. Motley Fool contributor Ryan Newman owns shares of Amazon. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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