Barnes & Noble, Inc. (NYSE:BKS)

There will always be a market for books. BKS is trusted, well established, and the only thing against them is their large scale retail operation (and their major competitor, AMZN). However, with momentum pointing to states requiring AMZN to collect sales tax, the competitive landscape levels off somewhat, and with AMZN making increasingly aggressive forays into their new role of publisher, they are creating significant friction inside the industry. If publishers turn against AMZN at all, BKS will be their go-to vendor. The scale of retail stores for BKS might have to change, but that takes less "agility" than people seem to think. It's not in the interest of any publisher to let BKS lose to AMZN. Borders was different--they had a long period of decline, which actually made it easier for publishers to absorb the resulting losses (not comfortable, but not a killing blow, either). I look at this as somewhat similar to the Ford/GM debacle a couple of years ago--F went way down because GM was failing, and they were muddled together in the eyes of most investors. But their businesses were different, and so were their products, at least to some degree. Same difference I see between BKS and the late great Borders.

Barnes and Nobles has been consistently losing money and missing estimates for at least two years, with an overall downward trend in earnings. While its debt to equity is decent, its current ratio is 1. Naturally, the valuation is not too bad, but this store could be a bankruptcy candidate if this trend continues long term. The biggest problem for Barnes and Nobles is that the national bookstore chain is likely an endangered species, unless B&N can undercut Amazon and other online retailers' prices. I can obtain books frequently for >10% less from Amazon, and Amazon has a much greater selection. While the Nook was a good move, there is so much competition in the eReader business that B&N may well fail to profit from this. The bottom line is, the physical bookstores are a tremendous drag on B&N, with a huge amount of space to maintain, which online retailers avoid. Thus, pricing remains higher at Barnes and Nobles, which must capitalize on a "premium experience" (e.g. Starbucks) and the convenience factor to draw customers. Yet with the rise of Amazon Prime, yet again I have to call advantage Amazon, which draws on its vast volume to provide prices B&N could never attain. Local bookstores with novelty items and a devoted clientele also are piling on, leading me to conclude that B&N will continue to head down.