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Bed Bath & Beyond Shares Tumble

Bed Bath & Beyond (BBBY - Get Report) shares tumbled Thursday after the company's second-quarter earnings report raised fears that its growth story is over.

But some analysts say it's too soon to throw in the towel on the leading retailer in the home-furnishing segment.

After the bell on Wednesday, BB&B reported second-quarter net income of $120 million, or 39 cents a share, up from $97.2 million, or 32 cents a share, in the same period last year. Revenue increased 15% to $1.3 billion, up from last year's $1.1 billion.

On the bright side, BB&B continued its streak of never missing Wall Street's earnings estimates through 12 years as a public company.

But it also extended a more recent and troubling trend, which has kept its stock in the basement this year. Second-quarter comparisons cooled, up just 4.8% in the latest quarter compared with 5.9% in the year-ago quarter.

Bed Bath & Beyond's growth is clearly decelerating, which explains its sagging stock price, analysts say. Annual revenue has grown an average of 26% since 1998, but they expect that to slow to 14% over the next five years. That's why the stock is currently trading at just 21 times 2005 earnings, compared with its historical price-to-earnings valuation of nearly 35.

On Thursday, the shares closed down $1.99, or 5%, to $37.59.

Still, Donald Trott, analyst with Jefferies & Co., rejects the idea that the company is running out of room to grow. He noted that specialty stores in the home-goods space, like Bed Bath & Beyond and its closest competitor, Linens N'Things (LIN - Get Report), now account for about 20% of market share, and that figure has been increasing by about 100 basis points a year. In other markets, specialty stores usually account for between 30% and 40% of market share.

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