Best Buy Co Inc Stock Still Has a Great Comeback Story

Best Buy reinvented itself, and BBY stock is going swimmingly

By Lawrence Meyers, InvestorPlace Contributor
Best Buy Co Inc (BBY) Stock Fairly Valued and Poised for a Bright Future

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Back in 2012, Best Buy Co Inc. (NYSE:BBY) was in trouble and management launched the “Renew Blue” strategy with new CEO, Hubert Joly. I admit it. I thought BBY stock was going to tank as Circuit City did, and head straight into bankruptcy.

How could it not? It was exactly the same kind of business. Yet I have to say, management pulled a rabbit out of its hat by re-envisioning what the business was and could be and it is succeeding.

BBY Stock Plans for the Future

The first step under Joly, though, was what one might expect – close underperforming stores, cut jobs and find efficiencies in the supply chain. Within three years, Best Buy stock managed to cut almost a billion dollars in costs.

The “store-within-a-store” concept was intended to enhance supplier relationships. It was a big hit. By partnering with the big names, creating these quasi-“genius bars,” it brought consumers back into stores, and got them to purchase services and equipment.

BBY also made a big push into online sales, and by 2015 had ship-from-store in 1,400 locations. Margins continually improved.

Now Best Buy stock may be poised for further gains with “Best Buy 2020”. In the 10-K, Best Buy stock describes this program:

We want to play two roles for them: be their trusted adviser and solution provider; and be their source for technology services for their home. Our customer value proposition is to be the leading technology expert who makes it easy for our customers to learn about and confidently enjoy the best technology.”

That’s all well and good from a PR standpoint, but what does it mean strategically? BBY will expand its in-home advisor program, which is a free service but obviously tries to up-sell the consumer by having access to this personal advisor.

BBY wants to expand more in Mexico and Canada. The company wants to improve execution, which means sales effectiveness, and fulfillment. BBY also wants to cut costs even further, on top of the $350 million in recent years. 

Of course, we look to the financial statements to see exactly what effect all these things are having on Best Buy stock. Q3 revenues rose a little over 4% to $9.32 billion, in line with the first nine months growth.   SG&A expenses increased in both periods.

Nevertheless, Q3 operating income grew more than 12% to $350 million, even as nine-month operating income was flat at $971 million.

Q3 net income was $239 million, up from $194 million. That’s a 22% increase. However, nine-month net income only rose 2.5% to $636 million.

Bottom Line on BBY Stock

BBY stock does have a solid balance sheet, with $3.5 billion in cash offset by only $1.3 billion in debt. That’s $2.3 billion in net cash, or about $7.60 per share.

If we look at the TTM, we see net income at around $1.2 billion. With a market cap net of net cash of $14.5 billion, BBY stock trades at 12x TTM earnings.

Analysts have a very positive five-year annualized growth estimate of 13.7%. I think this is overly optimistic, and relies more on cost cuts than organic growth.

However, I don’t want to dismiss the 4.5% domestic comparable store sales increase or the 3.8% increase internationally.

I think BBY stock is just slightly too expensive for me at the moment. I’d like to see something closer to 10x earnings. But if you have a very long term horizon, I can think of worse places to invest.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at He does not own any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at [email protected].

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