Best Buy (NYSE:BBY) is one of the best retailers out there. BBY stock popped to all time highs in late August after the consumer electronics retailer reported surprisingly strong second quarter numbers which broadly underscored its dominant position.

In the quarter — which was, remind you, the same quarter that consumer spending at electronics and appliances stores dropped more than 20% — Best Buy reported 5%-plus comparable sales growth, nearly 250% digital sales growth and 50%-plus earnings per share growth.

Those are big numbers.

Against an ugly consumer spending back drop.

They broadly underscore that Best Buy is a winning retailer, in a strong consumer retail category, with attractive long-term growth fundamentals.

To be sure, BBY stock is slightly overvalued here and now. But the fundamentals are so stable and strong that the stock serves as a solid income play, even at elevated levels.

So while I’d wait for a dip to buy into Best Buy stock, I certainly wouldn’t fault anyone for holding here.

Here’s a deeper look.

Strong Earnings and BBY Stock

Best Buy’s second quarter earnings report was very good. Comparable sales rose 5.8%; U.S. comps rose 5%; international comps rose 15.1%; digital sales rose 242%; operating margins expanded 190 basis points.; earnings per share rose nearly 60%.

Of course, a lot of the strength in Best Buy’s quarter was driven by work-from-home and stay-at-home trends.

As employees have been ordered to work from home, they’ve gone out and spent a bunch of money on computers, printers, WiFi boosters, and other electronic devices to make the WFH experience more robust and productive.

Similarly, as consumers have been ordered to stay at home, they’ve gone out and spent a bunch of money on streaming device players, video games, tech gadgets and other electronic devices to make staying at home more enjoyable.

These trends won’t last forever. Consumers will go back outside and socialize in bulk again…eventually. And even though hybrid work environments are the future, we will likely never again see this all-at-once surge in demand for WFH electronics.

Still, there are secular growth drivers underlying the Best Buy growth narrative which imply that the future for BBY stock is a bright one.

Long-Term Growth Drivers

First, technology is rapidly proliferating across the entire consumer retail category, and eventually, everything the consumer buys will be a “consumer electronics” device. Of course, right now we have smartphones, smart fridges, smartwatches, etc. Demand for those devices will remain robust for the foreseeable future.

But, by 2025/30, we will have smart everything… smart glasses, smart coffee mugs, smart cameras, etc. As the supply of smart devices increases and grows, demand for all these new devices will grow, too, thereby creating a multi-year tailwind for global CE sales.

Second, Best Buy has cemented itself as the go-to CE retailer in the U.S. through a second-to-none physical footprint, a best-in-breed omni-channel business and unparalleled in-store expert help. Thus, as the CE industry booms over the next several years, so will Best Buy’s sales.

Third, thanks to the pandemic, Best Buy is figuring out to how operate at full sales capacity but on a structurally slimmer expense base. This includes fewer physical shopping hours, less in-store employees and a heavier mix of omni-channel sales like curbside pickup (which carry a higher margin than shipping orders since they have lower fulfillment expenses).

Thus, over the next several years, Best Buy will be a retail growth story supported by steady revenue growth and continued profit margin expansion. That’s a winning story.

Slightly Overvalued

BBY stock is slightly overvalued today relative to the company’s long-term growth fundamentals.

My model assumes that Best Buy sustains ~3% revenue growth and steady operating margin expansion to 5%-plus levels by 2025. Under those assumptions, I see earnings per share rising towards $8.20 by fiscal 2025. Based on a 15-times forward earnings multiple — which is historically average for this industry — and an 8.5% discount rate, that implies a 2021 price target for BBY stock of just below $100.

So, at $110 today, BBY stock does look slightly overvalued.

But the fundamentals are rock solid. The growth narrative is good. The visibility to sustained growth is high. There’s also a 2% yield which, in this environment, is pretty high.

All in all, then, there’s a lot to like about BBY stock which makes the present slight overvaluation not all that worrisome.

Bottom Line on BBY Stock

Best Buy is one of the best retailers in the world, and to that end, BBY stock is a solid long-term investment.

The valuation, however, is slightly extended at current levels.

So, instead of chasing this rally, I say wait for a pullback, and buy on that dip.