Best Buy Co ( NYSE:BBY )
Best Buy (NYSE: BBY) is a US-based retailer that specializes in consumer electronics such as phones, video games, and PCs. In addition to its primary electronics segment, Best Buy also offers a range of other services including credit cards, health and wellness solutions, and business outfitting. Following Best Buy’s earnings report, mentions of the stock rose by a massive 200%, indicating that an increasing number of people are wondering if Best Buy is a good investment. At $82.06 Best Buy is trading at a 19.64% YTD discount.
Is Best Buy a Good Investment - Positives
There are plenty of reasons why it might be a good time to add some Best Buy stock to your portfolio but here are the most important.
With Best Buy stock dropping by almost 20%, it’s become far more competitively valued in price-to-earnings terms, with a ratio of just 9.6. Additionally, the electronics retailer boasts a rather attractive 3.58% dividend yield, making it quite a compelling value investment.
On the topic of dividends, Best Buy has been rewarding long-term investors by raising their dividends for 5 consecutive years. Over this period, Best Buy’s dividends have increased by an enormous 140%. Because of this, Best Buy is sizing up to be quite an enticing investment based on its dividends alone.
Keeping inventory turnover quick is crucial to the success of a retailer, especially one positioned in the electronics sector. It’s simple, the more excess inventory you have, the less well-performing goods you can store. Last year, Best Buy described its inventory as “unusually low”, however things seem to have improved since, with Best Buy’s inventory growing by 9% year-over-year. Compared to rivals like Walmart at 32%, it’s clear that Best Buy is making an effort to carefully control its inventory, a strategy that’s sure to pay off over the long haul.
Wall Street analysts were not kind to Best Buy with their Q1 estimates. However, the retailer’s cost-cutting efforts paid off as it managed to beat estimates on most metrics except earnings-per-share which came in at $.03 (1.9%) below expectations.
Despite consumer demand for Best Buy’s bread and butter computing products dropping, increased demand for appliances helped to mitigate the losses. This highlights how well diversified Best Buy is, if one segment falls, another will help to pick up the pieces.
Is Best Buy a Good Investment - Negatives
Best Buy, like any company, is not infallible. Here are a couple of reasons why it might be a better idea to avoid buying any Best Buy shares for the time being.
Over the past year, Best Buy has had it rough. Cash profits have decreased significantly and are now under $1 billion, less than half of its net income. Additionally, it is currently valued at 17 times free cash flow, making it a difficult investment to justify at today’s prices.
Best Buy’s first quarter was far from ideal, management stated that its Q1 sales were weaker than expected and the trend is likely to continue for the rest of the year. As such, it could be a better idea to wait for its second-quarter earnings before investing as additional sluggish sales are likely to push Best Buy’s stock down further.
Hype Asset of the Day - Conclusion
Best Buy is a massively popular company that has suffered due to a decrease in consumer spending. Despite this, the retailer has managed to keep its head mostly above water and is doing far better than some competitors, a testament to the strength of Best Buy’s brand and offerings. With (mostly) better than expected earnings and an impressive dividend, it’s far from the worst time to purchase Best Buy stock, particularly if you dollar-cost-average into your position. If you’d like to receive more trending stocks direct to your inbox, check out our premium plans, or to learn more about the services offered by HypeIndex, head over to our FAQ page.
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