Another stock on the rise of late is giant electronic retailer Best Buy (BBY). A new CEO having successfully rebuffed a buy-out proposal from its founder has the company firing on all cylinders.
The latest news is the launch of an exclusive electronics product – a Bluetooth enabled watch device that allows users to receive texts and messages – available only at Best Buy.
Investors love the hyperbole. To be able to beat Apple to market is a coup to cheer if you are bullish on Best Buy.
Yeah, good luck with that.
At current prices Best Buy now trades well above levels that the founder originally offered for taking the company private. Remember, the founder searched long and hard to secure financing for the deal at those levels.
And he was rejected soundly. I wonder why?
Perhaps it was because some of the greatest financial minds on the planet believed the company to be worth far less. Not only that, these same financiers took a pass when the stock was worth far less and the buy-out price had dropped to the teens.
So how is that in just a few months the stock is worth double the lowest price available to private buyers who ultimately passed on the deal?
The answer is because the stock isn’t worth that price.
The problems for Best Buy are quite large – mainly on-line competition and a lack of new products in the electronics space. Smart phone makers like Apple and Samsung have reached a new phase in the growth of smart phones.
To think those issues won’t impact Best Buy is frankly naïve. As for this new electronics device I would worried by the fact that the company has zero history with exclusive products.
This is not going to end well and a poor earnings report is the likely trigger.