Best Buy Co Inc (NYSE:BBY) continues its journey to recapture its position in American retail. Once a favorite place to shop for gadgets and electronic media, the advent of e-commerce and the rise of Amazon.com, Inc. (NASDAQ:AMZN) took BBY to the brink of extintion — or so people thought. Now that Best Buy has engineered its recovery, Best Buy stock trades near all-time highs and its growth looks poised to continue.
BBY Stock Has Fully Recovered
If any retailer has shown that a brick-and-mortar retailer can thrive against Amazon, it is Best Buy. Many assumed Amazon would shove BBY aside in the earlier part of the decade. Revenues for Best Buy stock turned negative, as the store became a virtual Amazon showroom. Customers would see the product in person at Best Buy and pay a lower price buying from Amazon.
Fortunately, the company found a way to turn its situation to its advantage. Best Buy has reduced inventories of items that can be purchased more cheaply and easily online. It also sells appliances which many customers would rather purchase at a store. The company also learned to leverage the best of in-store and online sales by launching its own e-commerce site. Now, it even partners with Amazon, the company many thought would drive BBY out of business. Together, they sell TVs powered by Amazon Fire.
Those who bet on Best Buy stock in the midst of a perceived death spiral have been rewarded handsomely. The stock now trades at levels seven times higher than its 2012 lows. Moreover, profits back up this higher stock price. The stock beats analyst estimates most quarters. BBY stock beat analyst estimates by 37 cents per share in the fiscal year ending in January 2018. Analysts also expect profits to see a further jump in fiscal 2019 before annual earnings growth settles into the high-single-digits.
BBY Stock Trading at a Fair Valuation
No, this is not the 100+% growth seen at Amazon. However, Amazon earns most of its income outside of its e-retailing core, so profit gaps are much narrower than they appear. Best Buy stock also trades at a more sustainable multiple than does Amazon. BBY stock trades at a price-to-earnings (PE) ratio of about 24, well below the 240+ PE ratio of AMZN. BBY’s predicted earnings will take the forward PE ratio below 16.
This also places Best Buy stock in a more favorable valuation position than Walmart Inc (NYSE:WMT). Still, investors should have bought Best Buy stock when it was supposedly going to fall victim to the “Amazocalypse.” At these levels, BBY has achieved a fair valuation. Investors will now find better deals in companies that are behind Best Buy stock in the recovery from Amazon onslaught. Target Corporation (NYSE:TGT) and Kroger Co (NYSE:KR) enjoy lower PE ratios. In the case of Target, it also pays higher dividends. In time, both of these brick-and-mortar retailers should catch up to the PE ratio BBY stock currently trades at.
The Bottom Line on BBY Stock
BBY stands as both a great stock and a great company. Profits, earnings, and dividends should continue growing for the electronics retailer. I would not discourage investors who want to buy or hold Best Buy stock. Still, other retailers offer better prospects for investor profits.
BBY has fully recovered from a near demise in 2012, and with the stock trading at all-time highs and profits rising, the growth of BBY stock should continue. Best Buy has proven the brick-and-mortar retailer can thrive against aggressive e-commerce companies, and sales and profits continue to rise.
Now, however, Best Buy stock has achieved a fair valuation, and retail investment dollars will likely perform better with other equities. However, if this stock sees a dramatic pullback, investors could do well with BBY stock.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.