BBY Stock: Check these factors before investing in Best Buy

Best Buy Co. Inc. (NYSE: BBY), a leading retailer of electronics and technology products, has increased its market share and sales consistently over the years. Interestingly, the biggest gains came during the pandemic when the remote work shift lifted the demand for computing products like desktops and smartphones.

The Stock

Best Buy’s stock has remained resilient to the COVID crisis and macro uncertainties, unlike most others in the industry. It got a much-needed push this week after the company reported mixed first-quarter results, and maintained the momentum since then. However, the stock is down 40% from the record highs seen in November last year. For the current P/E ratio of less than 9, the valuation is very low.

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Read management/analysts’ comments on Best Buy’s Q1 earnings

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Experts’ bullish outlook indicates the stock is headed for decent gains in the 12-month period. BBY is capable of overcoming short-term weaknesses and creating value for shareholders. Meanwhile, analysts are cautious in their recommendations due to the downward revision of full-year guidance by the management, which is also weighing on investor sentiment.  

Strong Earnings

Though earnings fell short of expectations in the most recent quarter, the bottom line either beat or matched estimates regularly in recent years. The company’s balance sheet is strong and it has ample liquidity to grow the business further. Also, with a 5% yield, Best Buy is an attractive dividend growth company.

When the COVID restrictions came, the management responded to the dip in store traffic by ramping up the eCommerce platform, and those efforts are paying off. With restrictions being eased, the company has revived its store strategy and is currently busy adding new units.

From Best Buy’s Q1 2023 earnings conference call:

“Clearly, there remains a great deal of uncertainty. On one hand, consumers still have a relatively strong balance sheet, they continue to spend, wages are up and unemployment is at record lows. On the other hand, many consumers are lapping stimulus income they received last year and are also facing issues like higher gas and food prices, rising interest in mortgage rates, recession fears, stock market volatility, and geopolitical uncertainty stemming from the war in Ukraine.”

Q1 Results

The general weakness in retail earnings this season has been a drag on investor sentiment. In the first quarter, Best Buy’s adjusted profit dropped around 30% to $1.57 per share and missed the consensus forecast. The earnings performance was hurt by an 8% decrease in revenues to $10.6 billion. The top line, however, came in slightly above Wall Street’s projection.

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Target expects Q1 headwinds to continue to impact profitability in the near term

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Of late, sales were affected by the muted demand for consumer electronic goods, mainly due to elevated inflation. The downtrend is likely to continue during the remainder of the year, considering the not-so-encouraging macroeconomic scenario. Also, the company’s long-term prospects would depend on its ability to tackle the rising competition, especially from the likes of Amazon.com, Inc. (NASDAQ: AMZN) and Target Corp. (NYSE: TGT).

Shares of Best Buy have lost about 29% so far this year, and a part of the weakness can be attributed to the recent market selloff. BBY closed the last trading session higher.