Worth 20 Best Buys, but Makes Half as Much

Glen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I have waited for over a month to write this article. The full year 2012 results are finally in. Let's get started, shall we? I am going to keep this short and to the point and base that point on facts. The reason that I have to do this is because you're not going to believe it.

Stunned in disbelief:

Recently, I posed the following question to a college business class. I said "Raise your hand if you think makes more money than Best Buy." After counting those hands, I said "Now, raise your hand if you think the opposite is true." And so it begins -- a tale of two companies.

The point: is worth 20x more than Best Buy, and yet it makes less than half as much as Best Buy.

The facts based on FY 2012 results:

Company 1: Best Buy (NYSE: BBY)

  • Market Cap: $5.80B
  • Enterprise Value: $7.32B
  • Revenue: $49.62B
  • Adjusted operating income: $1,502M
  • Adjusted Annual Free Cash Flow: $965M

Company 2: (NASDAQ: AMZN)

  • Market Cap: $120.79B
  • Enterprise Value: $112.60B
  • Net Sales: $61.09B
  • Operating Income: $676M
  • Free cash flow: $395M

The summary:

1. The Market Cap of is greater than 20x that of Best Buy.

2. The Operating Income of is less than half that of Best Buy.

3. The Free Cash Flow of is less than half that of Best Buy.

In conclusion:

Best Buy is trading at a discount to its intrinsic value and is worth owning at these prices and the dividend is sustainable. I figure there is an easy 50% upside. For these two reasons I have convinced my grandmother to buy it a few dollars cheaper recently. is extremely overvalued in comparison. My advice is that if you own it, sell it and buy Best Buy.

Glen's Grandmother and anyone that loves dividends that reads his newsletters owns Best Buy as well. Glen does not have a stake in Best Buy. Glen does not associate with people who own but he uses several times a year to buy stuff.

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