Why Best Buy Stock Is Still Worth a Look As It Climbs Back to the Top

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In today’s “winner take all” retail environment, where does Best Buy (NYSE:BBY) stand? Granted, as I’ve said before, they’re stuck in the middle, so to speak. But, its position in the retail pecking order may not matter when it comes to the future performance of BBY stock.

Image of Best Buy (BBY) logo on storefront during daytime.

Source: BobNoah / Shutterstock.com

How so? Many novel coronavirus-driven trends may benefit its rivals a whole lot more. Yet, these factors (the rise of e-commerce, “work from home” and video game boom) all serve as tailwinds for the electronics giant right now. That’s why shares have headed close to pre-pandemic highs.

But, are today’s tailwinds sustainable? Many may think that certain factors working in Best Buy’s favor right now (like stimulus checks being spent on electronics) are one-and-done events. Yet, don’t expect this to be the case. With the company gaining market share, and succeeding with its omnichannel (in-store and e-commerce) strategy, strong results are likely to continue.

In other words, there’s plenty of runway for shares to head even higher. Add in a reasonable valuation, and a solid dividend yield and BBY stock remains a solid buy in today’s market.

Why the Pandemic Was a Tailwind for BBY Stock

Sure, Best Buy wasn’t an “essential” retailer like Walmart (NYSE:WMT) or Target (NYSE:TGT). But, unlike many of its bricks-and-mortar counterparts, the company managed to turn what was a headwind for most into a tailwind.

Firstly, the company maintained sales at 70% of pre-pandemic levels. That’s an impressive showing relative to other stores decimated by the lockdowns. Yet, it’s no surprise, either. Mass “working-from-home” required many to upgrade their remote office hardware. The boredom resulting from lockdowns limiting leisure activities also had an impact. That meant strong demand for consumer electronics like televisions and video game systems. The $1,200 government stimulus checks helped bolster this demand.

Secondly, the pandemic allowed Best Buy to accelerate its e-commerce expansion. Sure, the company may not hold a candle to Amazon (NASDAQ:AMZN) when it comes to online electronics sales.

Yet, online sales jumped around 58% in 4 years, rising from $4.8 billion in 2016, to $7.6 billion in 2019. Increased e-commerce demand thanks to the pandemic only adds to this. In short, Best Buy is succeeding with its omnichannel strategy.

Thirdly, with most of its stores now re-opened, expect strong results to continue. Accelerating its omnichannel strategy, and increasing market share, they can continue to “crush it.” And BBY stock? There’s plenty of room not only for shares to retrace past highs. But also, move even higher.

Reasonable Valuation Opens the Door for Multiple Expansion

Despite its relative success in today’s challenged retail environment, Best Buy stock continues to trade at a reasonable valuation. As it stands now, shares change hands at a forward price-to-earnings (P/E) ratio of 16.8.

And this is despite analysts estimating earnings for BBY stock to rise nearly 20% between this fiscal year (ending Jan 2021) and the next. In short, there’s plenty of reason for the company’s forward multiple to expand to the level of general retailers like Walmart and Target (both trade for around 24 times forward earnings).

So, how much would Best Buy shares be worth if valuation moved up to that level? At a forward P/E of 24x, the stock would be trading for around $125 per share. That’s about 43% above today’s trading price.

And this isn’t the only way shares offer a tremendous value proposition. Consider the dividend. Shares currently sport a forward yield around 2.5%. In today’s low-interest environment, this makes shares an appealing opportunity for income investors.

But wait, it gets better. There’s plenty of room for Best Buy to grow its dividend. With a payout ratio of just 42%, and a 5-year average dividend growth rate of 23.3%, that yield could easily go higher.

And if you’re concerned whether the retailer’s balance sheet can’t handle it, don’t worry! With plenty of cash, and a manageable level of debt, the company is more than able to maintain its current payout levels.

BBY Stock Remains a ‘Best Buy’ in Today’s Market

The coronavirus may have hurt many “non-essential” retailers. But Best Buy wasn’t one of them. Not only did sales remain resilient during the pandemic. The company managed to accelerate its omnichannel strategy.

But even with shares bouncing back due to this success, there’s plenty left on the table. Given its reasonable valuation, strong dividend yield and expected earnings growth, shares could move substantially higher from where they are today.

In short, you could say this remains a “best buy” in today’s market. I remain bullish on BBY stock.

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.


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