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.
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:
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.
