Why Barnes & Noble, Inc. Surged Today

By Markets Fool.com

Continue Reading Below

Image source: The Motley Fool.

What happened

Shares ofBarnes & Noble, Inc.(NYSE: BKS) were gaining today on a favorable report from Barron'sover the weekend, sending the stock up 10% for the day.

So what

The financial magazine said the perception that Amazon.comis killing Barnes & Noble incorrect, as the brick-and-mortar bookseller has survived Amazon's onslaught, e-book sales have stabilized, and Barnes & Noble stores are profitable. Author Andrew Bary went on to argue that management has projected a steady increase in EBITDA, from a range of $200 to $250 this year to a range of $270 to $310 million in fiscal 2020, and that the stock's valuation could present an upside, as it trades a price-to-sales ratio of just 0.2 and has a 5.3% dividend.

Continue Reading Below

Despite closing many stores in recent years, the company still has 640 locations and a $25-a-year membership program with 6 million members and a 70% renewal rate, indicating a lasting business model.

Now what

Bary isn't the first one to make such a bullish argument. Barnes & Noble stock has bounced between $10 and $20 for much of the past five years, as the company's outlook seems to change with every quarterly earnings report or analyst call.

While it's true that the retailer has survived Amazon, the e-commerce giant has developed near-monopoly power in the book industry, and its steps into its own brick-and-mortar stores could present a further threat to B&N. Though Barnes & Noble's stores are now profitable on an operating level, the company's Nook experiment has proved costly, and its net income has been negative for more than five years.

Things have been slowly improving for Barnes & Noble, but it's long-term success is far from guaranteed. I'd expect the stock's volatility to continue.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com. The Motley Fool owns shares of Barnes and Noble. Try any of our Foolish newsletter services free for 30 days. 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.