Best Buy (BBY) fell nearly 6% last week, dragged down by a pessimistic note from Bank of America analyst Denise Chai, who downgraded BBY stock from “buy” to “underperform.”
But Best Buy might be getting an unfair shake.
The Fly quoted Chai as saying, “Best Buy’s comparative sales will probably be weighed down by weak personal computer trends, stagnant mobile sales and pricing pressure on tablets.”
Noting that these categories represent 49% of BBY sales, Chai estimated Best Buy’s comparative sales would fall 1% in the second half of 2015, while analysts in general expect BBY comp sales to rise 1%.
Chai’s note, however, ignored multiple new product categories that should significantly boost BBY sales and BBY stock within the next six months.
For instance, the growing popularity of drones and advanced cameras, along with augmented and virtual reality products, are likely to inspire sales growth at Best Buy stores over the next year and further.
A pullback in BBY stock (like the one we just experienced) could be treated as a discount and chance to load up on shares, while the aforementioned catalysts grow comparative sales past analysts predictions in the second half of 2015 and into 2016.
Best Buy Capitalizes on Drone Market
How do I know these catalysts will spur growth? Well, BBY is already benefiting from selling drones, whose popularity is growing. In an email to The Minneapolis/St. Paul Business Journal, spokesman Ryan Stanzel noted:
“Drones are a quickly growing category for Best Buy … As the technology continues to evolve, we expect drone sales to continue to grow for enthusiasts and the general public alike.”
Best Buy currently sells drones in nearly half of its 1,400 stores, and according to The Consumer Electronics Association, around 400,000 drones will be sold in 2015 in a market reportedly worth $130 million.
Best Buy’s decision to add more drones to its stores suggests that the company has experienced firsthand the strong demand for drones.
Action Cams and VR Drive Future BBY Growth
Cameras are another growth engine for BBY. Ambarella (AMBA) — a chipmaker that supplies GoPro (GPRO), among other companies — claimed its first-quarter revenue surged 73.5% versus the same period a year earlier. AMBA reported benefiting from increased sales of home-monitoring cameras, in addition to strong sales of wearable cameras, such as those made by GoPro.
Many, including Facebook (FB), believe that virtual reality will be “the next big thing.” Meanwhile, Samsung (SSNLF) and Facebook intend to launch virtual-reality headsets for consumers in early 2016.
Beyond headsets, the proliferation of VR could also bring the sagging PC market to life. Oculus VR CEO Brendan Iribe believes “virtual reality should ignite a new race to increase computing power” as consumers want increasingly more powerful computers that can deliver a smoother VR experience.
If Iribe is correct, demand for more powerful PCs will significantly increase when VR headsets are released, boosting Best Buy’s PC sales. This trend should start as soon as the consumer version of Facebook’s Oculus headset is launched early next year.
Given the impact of these outlooks, Best Buy’s 2015 comparative sales should easily beat analysts’ expectations. And toward the end of the year, investors should begin to look to the positive impact that the release of VR headsets will have on Best Buy’s sales, starting in 2016.
And that in turn should be a driver of BBY stock going forward.
As of this writing, Larry Ramer did not hold a position in any of the aforementioned securities.
