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Is Best Buy Stock Still a Buy?

The momentum in Best Buy Co. (BBY) shares should keep trucking in the coming months owing to a jump in its online sales and better-than-expected earnings growth. Also, strong consumer demand across all its product categories, combined with shopping experiences that emphasize safety and convenience, should, we believe, bolster BBY’s sales and further prolong the stock’s rally. Let’s look.

Best Buy Co., Inc. (BBY) offers retail technology products in the U.S. , Canada, and Mexico. The company operates through domestic and international segments, selling consumer electronics, entertainment products and gaming hardware, and other software products. It offers its products through stores and websites as well as through mobile applications and call centers.

BBY registered a 173.7% increase in domestic online sales and generated comparable sales growth across most of its categories in its last reported quarter, with the largest drivers being computing, home theater and appliances. The company should continue to benefit from consumers’ focus on remote working and at-home entertainment even as some public spaces reopen. Since the demand for BBY’s products and services remains at elevated levels, the stock is positioned to grow significantly in the coming months.

The company’s supply chain expertise and strong business model have facilitated a 12.6% year-to-date gain. This impressive performance, combined with several other factors, has helped BBY earn a Buy rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates BBY:

Trade Grade: A

BBY is currently trading higher than its 50-day and 200-day moving averages of $108.69 and $99.41, respectively, indicating that the stock is in an uptrend. In fact, the stock’s 9.5% return over the past month reflects solid short-term bullishness.

BBY’s domestic sales grew 21% year-over-year to $10.85 billion for the third quarter ended October 31, 2020, driven primarily by comparable sales growth of 22.6%. Its  gross profit increased 18.4% year-over-year to $2.8 billion, while operating income grew 42% from the year-ago value to $561 million. BBY’s EPS increased 35.1% from the year-ago value to $1.50 over this period.

On January 9, BBY announced the appointment of Mario J. Marte, a leading e-commerce executive, to its Board of Directors. His two decades of business experience should help him introduce  more strategic thinking about diversity at the company that could accelerate its progress and help it serve its customers better.

Buy & Hold Grade: B

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, BBY is well positioned. The stock is currently trading 10% below its 52-week high of $124.89, which it hit last November 5.

BBY’s  revenue has grown  at a CAGR of 4.2% over the past three years, while its EPS increased at a CAGR of 18.2% over this period. BBY’s EBITDA grew at a CAGR of 8.2% over the past three years. This can be attributed to the company’s strong comparable sales growth and flexible store operating model.

Peer Grade: B

BBY is currently ranked #10 of 43 stocks in the Specialty Retailers group. Other popular stocks in this industry are Tractor Supply Company (TSCO), Ulta Beauty, Inc. (ULTA) and Five Below, Inc. (FIVE)

While TSCO and FIVE beat BBY by gaining 57.3% and 52.1%, respectively, over the past year, ULTA returned 6.2% over this period.

Industry Rank: C

The Specialty Retailers industry is ranked #60 of 123 StockNews.com industries. The companies in this industry market  an assortment of goods from office supplies, consumer electronics, video games, books, health supplements to beauty supplies and more.

As more people are now comfortable shopping online, things could get difficult for retailers with physical stores. With so much retailing having shifted online in response to the pandemic, specialty stores now require different and unique approaches to attract new customers and survive amid large scale competition. Moreover, growing concerns surrounding anew strain of the coronavirus could make matters worse for brick-and-mortar store retailers  because it could spell as an even greater decline in in foot traffic in coming months.

Overall POWR Rating: B (Buy)

BBY is rated Buy due to its impressive financials, short- and long-term bullishness, and solid price momentum, as determined by the four components of our overall POWR Rating.

Bottom Line

BBY has plenty of room to grow despite gaining 12.6% year-to-date. Thanks to the company’s quick shift to a digital e of operation and an unexpected surge in the demand for consumer electronics, BBY’s revenue and earnings increased significantly amid the unprecedented public health crisis. With the considerable surge in sales across nearly all product categories, the stock is expected to carry forward this momentum.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is good for BBY. It has an average broker rating of 1.72, indicating favorable analyst sentiment. Of 24 Wall Street analysts that rated the stock, 6 rated it a “Strong Buy.”

A consensus EPS estimate of $1.14 for the quarter ending April 30, 2021 indicates a 70.1% improvement year-over-year. And the consensus revenue estimate of $9.69 billion for the next quarter represents an 18.8% increase from the same period last year.

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BBY shares were trading at $108.59 per share on Friday afternoon, down $3.72 (-3.31%). Year-to-date, BBY has gained 8.82%, versus a -0.73% rise in the benchmark S&P 500 index during the same period.



About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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