Best Buy (BBY): Can this company be the Best Buy for your portfolio?
Tuesday, June 14th, 2016
As of late, the retail sector has been getting hit very hard. It has not been a different story for Best Buy (BBY), as the company’s current price of $29.14 sits well below its 52-week high of $39.10.
Not only has their standing as a retailer affected the stock price, but last week CEO Hubert Joly sold 44% of his shares of Best Buy, or $12.8 million. The stock was sent falling as much as 5% on that day.
This news should not concern investors as Joly still owns 511,000 shares, a value of nearly $15 million. If Joly was seriously concerned about the future of Best Buy, he would not have kept $15 million invested in the company.
It is important to understand that like any good investor, he wanted to diversify his holdings. The main question: has this been a case of a good company with a bad stock, or is it a bad company and a bad stock?
Best Buy is a retailer for a wide range of electronic products, including mobile phones, computers, TVs, appliances and much more.
They have introduced many stores within the store, which helps to offer a good experience for the consumer. These stores include Samsung, Pacific Kitchen & Home, Verizon, AT&T, and Magnolia Design Centers. The company also has a service department which is known as their Geek Squad.
With Best Buy’s and other retailers’ recent decline in price, the valuation ratios appear very attractive. The P/E ratio is currently 10.05, which is below the industry average of 12.38. As an investor, you should be excited to see a strong P/E of 10.
Price-to-sales is 0.24, slightly above the industry average of 0.18. This is still a low valuation, and compared to some of their major competitors it looks strong.
Their major competitor’s price-to-sales is as follows: Wal-Mart- 0.45, Target 0.54, Amazon- 2.98, and EBay- 4.32.
Remember, for valuation ratios you want to see a lower number, as that indicates a better value.
Price-to-tangible book value is 2.39, which is slightly above the industry average of 2.24, but below the likes of their major competitors: Wal-Mart- 3.76, Target- 3.14, Amazon- 30.76, and EBay- 15.99.
It is also important to note Best Buy does not have many intangible assets on their balance sheet, as there is a minimal spread between the price/book value of 2.15 and the price/tangible book value of 2.39.
Best Buy is currently paying a dividend of 3.8% and only uses 48% of their earnings to pay it out. The balance sheet looks good, as there is a current ratio of 1.47 and debt-equity is 31.1%, below the industry average of 35.6%.
Their sales have fallen for 2.1% over the last twelve months, while EPS has increased 27.6% during the same time frame.
The company has been in the process of implementing their “Renew Blue” strategy, which includes consolidating stores and international brands. This has forced the company to take restructuring charges over the past few years. Last May, they took a charge of $188 million to consolidate the Canadian brand.
While they continue to eliminate stores that are hurting margins, they are seeing tremendous growth in their online sales, which had domestic comparable sales of 23.9% in the quarter. This should be beneficial for the company going forward, but before investing you should understand the “Renew Blue” reformation.
Looking forward to January 2018, estimated EPS of $3.12 gives us a target sell price of $51.48. This is nearly 77% away from its current price of $29.14.
Best Buy has the makings of a great investment, but there is still more research that is necessary before buying the company.
Do you have a question or a company you'd like me to take a look at? Email me at Chase@WilseyAssetManagement.com!
Chase is a financial analyst for Wilsey Asset Management and can be heard every Saturday at 8 a.m. on KFMB AM760 as the co-host for the Smart Investing show with his father Brent Wilsey. Information is provided by Reuters.
Sign up for our free weekly e-newsletter for economic updates, investment advice, and various company analyses. Articles are written by well renowned investment expert Brent Wilsey. Please visit our Archived Newsletters tab to view past articles.
Would you like the Smart Investing E-Newsletter sent to your inbox every Tuesday?