Etailer vs. Retailer
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
So, Best Buy (NYSE: BBY) is reporting on Aug. 21 and things haven’t been looking good for the retailer. Even after naming Hubert Joly as CEO today with his expertise in turnarounds of failing companies, the stock fell as much as 10% at one point. And it’s mostly the fault of e-tailer Amazon.com (NASDAQ: AMZN). Looking at their charts since early 2011 it looks like a great pairs trade -- short Best Buy and go long Amazon.
The reason this struck me was I was looking at my loyalty keychain for my once yearly winnowing, much like Shirley Jackson’s “The Lottery,” and there were cards for Borders, Blockbuster Video and Best Buy. One long gone, the other on life support and Best Buy being rushed through the ER double doors. (In this case it means emergency room, not earnings release). Out they went. I just don’t buy at Best Buy and while I drive by on the way to Target or Kohl’s, I‘ve been noticing fewer and fewer cars there all the time.
The Stoning Has Just Begun
While back-to-school won’t be reflected in Tuesday’s numbers the earnings in October probably won’t look that much better. Here’s the thing: it’s just easier to shop at Amazon. I can pre-shop at Best Buy or Wal-Mart or even Target. After picking which electronics I want I can just go on Amazon and get it with no sales tax in my state. And I can get it two days. Amazon is trying to get that down to next day with Prime.
Since I decided to get Amazon Prime for my kid in college, shipping is free for anything from a 60-inch TV or all the textbooks she’s going to order as well as the kicker -- she can stream content on her Mac in the dorm. Why wouldn’t you shop at Amazon once you have Prime? Not to mention all the free books she can download to her Kindle with Prime.
This isn’t good for Netflix (NASDAQ: NFLX) either. Student Prime is $79 a year, cheaper than Netflix by about $17, and you also get the free shipping on Amazon orders. But back to Best Buy since the earnings release is imminent.
Best Buy has a negative EPS of $3.36. It has a yield of 3.50% but what good is that going to do you when it drops by much more than that over the next few months? Certainly, the consensus was that upon Circuit City’s demise that Best Buy would really start to make some money. Unfortunately for Best Buy shareholders that hasn’t happened and aside from a possible take private buyout (difficult to pull off at best) by founder and largest shareholder Richard Schulze the stock price will likely go lower. Shareholders may just want to take their electronic toys and go home. Despite an ambitious plan to reeducate personnel and offer free Geek Squad visits, shorts are keeping the rocks in their pockets ready to stone Best Buy just like in "The Lottery."
Competitor hhgregg (NYSE: HGG) reported earlier in August and guided lower. It is implementing the same program of “order online, ship from store” that Best Buy and Wal-Mart currently have. While Best Buy is closing 50 stores this year hhgregg has opened 35 new stores and announced plans to open 20 more in FY2013. The company has a P/E of 3.55 and is down over 50% from its 52-week high. If hhgregg is guiding lower yet still opening new stores, how does that look for Best Buy?
It’s not just Amazon that is cleaning Best Buy’s digital clock. In appliances, Home Depot and Lowe’s have been seeing good numbers. The alternatives to shopping at Best Buy in all its categories are just too numerous for this former bricks-and-mortar behemoth.
Bricks and Stones
Amazon’s trailing P/E is astronomical at 293.75 (forward P/E is still 101.33) with a short interest just over 2% and Netflix’s is at 36.27 with a huge short interest of 28.4%. hhgregg has an astounding 45.5% short interest and the lowest P/E but if the trendline is your friend you will not “order it online” and buy this stock. All these featured stocks except Amazon are down big over the last 52 weeks. Even with that "amazing" P/E Amazon could still trend higher.
Best Buy is the worst bet of all with the worst chart and negative EPS and a dividend that could be cut at any time. This is a broken business model that even the Geek Squad can't fix. Flee before the stoning starts.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com, Best Buy, and Netflix. Motley Fool newsletter services recommend Amazon.com, hhgregg, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.