“Mad Money” host Jim Cramer on Thursday sought to help viewers differentiate between a broken stock and a broken company.
Early in the broadcast, Cramer identified biotechnology firm Celgeneas a broken stock and recommended investors consider starting a position. Then, he turned his attention to Bed Bath & Beyond.
Up until last week, Bed Bath & Beyond had been a “best of breed” growth stock, which posted gains of 27 percent year-to-date. On Wednesday, though, it gave a weaker-than-expected quarterly profit outlook as it spends sooner than expected to improve its e-commerce business. It also said customers were buying a greater percentage of lower-margin goods. It forecast earnings of anywhere from 97 cents to $1.03 per share, substantially less than the $1.08 a share that the analysts were looking for.
“Investors care about the future, not the past. When a company reports, the guidance is everything,” Cramer said. “You could deliver the best quarterly results in the world and your stock would still get hammered if you gave a downbeat forecast.”
Perhaps not surprisingly, then, the stock fell $12.50 or 16.9 percent in a single session. Its market capitalizationalso shrunk by $2.85 billion.
So is Bed Bath & Beyond a broken stock or a broken company?
“I think the long-term growth story here is still intact and the market severely overreacted to this news,” Cramer said. “The stock’s behaving as though Bed Bath & Beyond’s business is falling off a cliff, but that’s just not the case.”
In Cramer’s opinion, company management was simply being cautious when issuing guidance, which isn’t entirely too uncommon. Management did talk about slowing trends, such as decelerating sales and deteriorating margins, but Cramer thinks both issues can be corrected. The company sells housewares and domestic merchandise, so Cramer thinks it will benefit from the turnaround in the U.S. housing market. Plus, he thinks consumer has more money to spend these days, as the price of gasoline has dropped.
(RELATED: Cramer’s Plays on a Housing Rebound)
So what’s the bottom line?
“Bed Bath & Beyond is a broken stock, but it’s not a broken company. I think the market severely overreacted to management’s typically conservative guidance and this stock will rebound nicely as people realize that we’re simply witnessing a classic case of ‘under promise and over deliver,’” Cramer said. “That's right, the BBBY bar is now set very low, low enough that I think management will have no trouble trumping it.”
—Reuters contributed to this report
Call Cramer: 1-800-743-CNBC
Questions for Cramer? firstname.lastname@example.org
Questions, comments, suggestions for the Mad Money website? email@example.com