Beating odds, Best Buy (BBY) emerges as a COVID winner. Is the stock a buy?

Retail chains that enhanced their e-commerce capabilities and adopted the omnichannel model were able to tap into the virus-driven online shopping boom. Best Buy Co. Inc. (NYSE: BBY), a leading provider of consumer technology products and services, is among the least affected by the pandemic. Sales and earnings grew in every quarter during the crisis period, consistently beating the estimates.

Stock Peaks

Last week, the company’s stock climbed to an all-time high after making steady gains over the past several months. At the current value, BBY seems to have peaked and doesn’t have much room for further growth, indicating that a pullback is on the way. It makes sense to keep the sock on the watch-list and put buy/sell decisions on hold until the picture becomes clearer. However, it can be a good bet for long-term investors, thanks to the company’s strong fundamentals and impressive dividends.

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Read management/analysts’ comments on quarterly earnings

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The sales momentum is likely to pick up during the holiday season, given the recovery in consumer spending aided by the government’s stimulus program. There has been an uptick in the demand for consumer electronic products like personal computers and mobile phones after the COVID-19 outbreak, which accelerated the digital transformation. Best Buy’s impressive omnichannel assets and ability to offer a good customer experience give it an edge. In the most recent quarter, the share of e-commerce sales nearly doubled from the year-ago period.

Concerns

However, continuing supply chain disruption and inventory issues could weigh on overall performance going forward. Margins might come under pressure from the high costs, mainly related to promotional activities and payroll. Also, there are concerns of consumers returning to their pre-pandemic spending habits as the reopening gathers pace, affecting comparable sales.

From Best Buy’s Q2 2022 earnings conference call:

“We continue to be confident in our ability to navigate the ever-changing environment. For the second half of the year, we expect the non-GAAP gross profit rate to be down approximately 30 basis points to last year, which compares to 60 basis points of expansion in the first half of the year. The primary drivers of the sequential decrease include the impact of rolling out total tech, increased promotional activity, and less leverage on our supply chain costs than we experienced in the first half of this year.”

Q3 Data on Tap

Best Buy is scheduled to report its third-quarter results on November 23 before the opening bell, amid expectations for earnings of $1.85 per share, which is down 10% from last year’s level. Analysts’ are looking for revenues of $11.46 billion.

In the second quarter of fiscal 2022, revenues increased 20% annually to $11.8 billion, reflecting a 20% increase in enterprise comparable sales. Adjusted earnings increased by three-fourths to $2.98 per share. The results also topped expectations.  

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Shares of Best Buy have gained about 25% so far this year, often outperforming the industry and the broad market. They closed Tuesday’s session at $134.93, which is well above the 52-week average.