Best Buy Co., Inc. (BBY) Buy or Sell Stock Guide

Last updated: Aug 25, '18

The analysis below may be helpful to you if you have any of the following questions about BBY stock:

  • Is BBY a buy or a sell?
  • Should I sell or hold BBY stock today?
  • Is BBY a good buy / a good investment?
  • What are BBY analyst opinions, recommendations, ratings?

Here are BBY stock buy reasons/signals:

1. Best Buy has re-engineered its online sales platform, improving the user experience and adding greater ship-from-store fulfillment capabilities.

2. New television, smartphone, gaming, health/wellness, connected home and virtual reality advances can offer product cycles that drive periodic top-line outperformance.

3. Best Buy has cut more than $1 billion from its annual cost structure and is targeting another $400 million in operating income improvement through improved returns, replacements, and damages processes and operational efficiencies.

4. Best Buy has exhibited a bullish run in the index when compared with the industry and the broader Retail-Wholesale sector.

5. Following the solid close to fiscal 2018, Best Buy provided an encouraging view for the first quarter and fiscal 2019. For the fiscal year, management forecasts Enterprise revenues of $41-42 billion with comps growth of nearly flat to up 2%.

6. Owing to the shift in consumer buying behavior, retailers find the store-in-a-store concept more viable and profitable to reach their target group. We believe that the strategy seems compelling to most retailers and is often considered a game changer as it facilitates the display of different brands under one roof and ensures a larger footfall. Best Buy is leaving no stone unturned to attract consumers and attain incremental revenues.

7. Following the successful completion of “Renew Blue” program, the company has launched a fresh strategy called “Best Buy 2020: Building the New Blue”. In an effort to drive growth, the company is focused on expansion of multi-channel retail business, offering services and solutions that solve customer need. Moreover, it is focusing on accelerating growth in Canada and Mexico.

8. BBY quarterly revenue growth was 6.80%, higher than the industry and sector average revenue growth (2.36% and 5.09%, respectively).

9. BBY forward dividend yield is 1.80%, higher than the industry (0.77%) and sector (0.54%) forward dividend yields.

10. BBY PEG ratio (P/E adjusted for growth) is 1.12, and it’s low compared to its industry peers’ PEG ratios.

Here are BBY stock sell reasons/signals:

1. Online retailers, mass merchants, warehouse clubs, and consumer product OEMs all compete for market share, resulting in aggressive industry price competition and constraining Best Buy's longer-term margin expansion opportunities.

2. Entertainment sales remain sluggish. Replacement categories in Best Buy's stores are often slower-turning, lower-margin products.

3. Warranty sales have historically been a disproportionate contributor to margins. If consumers continue to gravitate to online retailers or vendor direct-sales platforms, declining warranty attachment rates will weigh on margins.

4. Analysts believe that Best Buy's investment activities to boost e-commerce operations and supply chains to counter competition may strain margins in the coming quarters. We also noted that SG&A expenses have increased 18.6%, 2.2% and 3.2% in the fourth, third and second quarter of fiscal 2018, respectively. Management hinted that higher investments in supply chain and increased transportation costs are likely to weigh upon gross profit of the Domestic business by approximately 25 basis points in each quarter.

5. Considering price-to-earnings (P/E) ratio, Best Buy looks overvalued when compared with the industry. The stock has a trailing 12-month P/E ratio of 17.32, which is above the median level of 15.51 but below the high level of 19.42 scaled in the past one year. Meanwhile, the trailing 12-month P/E ratio for the industry is 14.82.

6. We believe that challenging retail landscape, aggressive promotional strategies and waning store traffic might hurt Best Buy's performance. The company faces intense competition from a diverse group of competitors, specially online retailers such as Amazon, Wal-Mart and other consumer electronics retailers, mass merchants, mobile phone service carriers, specialty home office retailers, and numerous direct-to-consumer websites. This may adversely affect both the top and the bottom-line growth.

7. BBY stock price ($82.08) is close to the 52-week high ($83.55). Perhaps now is a good time to sell?

8. BBY profitability is declining. The YoY profit margin change was -0.74pp.

9. BBY average analyst price target ($74.44) is below its current price ($82.08).

10. BBY short share of float is 8.96%. The stock is much more frequently shorted than the average industry, sector or S&P 500 stock.

11. BBY short interest (days to cover the shorts) ratio is 6.21. The stock garners more short interest than the average industry, sector or S&P 500 stock.

What are your thoughts on BBY?

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