Practically since the day Circuit City went bankrupt, during the Crash of 2008, analysts have been expecting big things from Best Buy Co Inc (NYSE:BBY) and have been disappointed.
After all, the thinking goes, the Richfield, Minnesota-based retail chain is the last big box electronics specialist left. They should dominate all areas of consumer electronics, from TVs and music to computing and phones.
But they don’t. Mass market retailers like Wal-Mart Stores, Inc. (NYSE:WMT) and online retailers like Amazon.com, Inc. (NASDAQ:AMZN) have picked up much of the growth folks expected to go to Best Buy.
Sales were fiscal 2016 were lower than for fiscal 2012, and even in a good year only 2% of those sales drop to the bottom line.
The result is that BBY stock has become a “battlefield stock,” with the shares prone to large price swings, bulls and bears constantly pulling it in one direction or the other, the stock often moving based on rumors or their own comments.
The Bull Case for BBY Stock
The bulls will note that the shares are up 8% over the last year. They see the shares being buffeted by problems at other companies and short-term opportunities abounding in spread trades.
Best Buy is due to report results for its second quarter on Tuesday, August 23, and many analysts are optimistic. There is an official estimate of 42 cents/share in earnings on $8.48 billion in sales, but a “whisper number” of 48 cents, following a better-than-expected first quarter with 44 cents in earnings on $8.4 billion in sales.
Extra attention is being paid Best Buy right now because it is turning 50, and it held a big sale to celebrate. The company is phasing in same-day deliveries to compete with Amazon.
The Bear Case Against Best Buy
As quickly as you can state the bull case for BBY stock, you can also state the bear case.
Best Buy has had many false dawns. The shares are down by one-third from where they were 10 years ago. The stock is subject to sudden downdrafts, as after the 2013 Christmas season, when it plunged from $40 per share to $25 and, for a day or two, seemed to take the whole market with it.
Best Buy had a good Christmas in 2015, the shares rising from $25 to $34 in the month as those earnings came out, but shares got little benefit from that good first quarter, and had to fight their slow way from $29 in June to $34 just a few weeks ago before falling back. Expectations for the current quarter seem muted despite having been increased recently.
The shares, in short, seem to be going nowhere fast.
A Trade, Not an Investment
Right now BBY stock has a mean rating of hold, with one calling it an outright “sell.” There has been some movement from hold to buy among analysts over the last two quarters’ solid earnings.
All of which tells me that disappointment could be right around the corner. Buying and holding Best Buy is not indicated. If you like action, trade it. You may make some money, you may lose some, but there are big differences of opinion here, and that means someone is making money.
Maybe it will be you this time.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.
