Is This Multinational Retailer Still Worth the Buy?

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

Best Buy (NYSE: BBY) is currently one of the more popular stocks that has been heavily discussed to date, partly due to the buzz generated by a possible buyout courtesy of businessman Richard Schulze. However, this news is hardly encouraging for traders who own or wish to purchase stock in the company, as Best Buy may go private at a price ranging from five to six billion US dollars, which is just about half of what it was originally worth. Still, it has been one of the global leaders in sales of consumer electronics, with over 1,400 stores, around 170,000 employees, and $50 billion in yearly revenue at one point. So is Best Buy a good buy?

Best Buy’s Current Financial State

In the several weeks prior to the close on Jan. 5, the company had only reported revenue of $12.8 billion, which is a significant drop from the $12.9 billion it earned a year prior. On the plus side, the company did register domestic sales of more than a billion dollars, which increased 10% from the previous year, although this may not be enough to free up resources to recover. Best Buy was looking forward to boosting cash flow to $1.05 billion come year end from $850 million, but this early on, the target was reduced to a more modest and attainable $500 million.

Shares from the company hit $14.67 for the Jan. 17 trading day, which was a gain of $0.25 from the preceding trading day. Volume of trading was at 6.92 million, and the stock managed to stay afloat almost 31% higher than its fifty-two week low of $11.20. In the past twelve months, Best Buy generated $49.54 billion in revenue, but did not actually make a profit. Earnings were pegged at -0.34 in terms of net profit, and operating margins were a paltry 0.7%.

What's On The Other Side

Meanwhile, Best Buy competitor Amazon.com (NASDAQ: AMZN) is doing brisk business. The online shopping site also offers many of the same products you would normally see in Best Buy, but with the added convenience and reduced prices not found in the latter’s brick-and-mortar superstores. The company currently has an almost 40% advance in 2012 earnings compared to the year before, and was given an “outperform” rating upgrade from a mere “sector perform.” Sales have also been consistent for the past half-decade, with annual sales increases ranging from thirty to forty percent, so the growth prospects Amazon has are still positive, giving its stock high valuation and earning potential.

Much like Best Buy, consumer electronics giant RadioShack (NYSE: RSH) seems to be on the decline, although not to as large a degree as the former. Zacks recently downgraded Radioshack to “underperform” from a rating of “neutral” last Jan. 9, with the stock having a price target of two dollars. The halt to its partnership with Target, a collaboration selling mobile phones at the latter’s stores, may be to blame for the plunge. Speaking of plunges, the valuation of RadioShack's stock is also quite low, as it experienced a dip of almost 80% for 2012.

Is This Goodbye for Best Buy

Best Buy may have increased in price by as much as 16%, but prices are not always indicative of whether you should trade a particular stock or not. The combination of actual and online store sales may have drummed up a lot of hype for the beleaguered company, but these and other, potentially damaging and highly detrimental “solutions” are likely to be part of a slow but steady descent. If you’re thinking about buying into Best Buy, it may be better to consider more lucrative alternatives, of which many abound.


RhodoraDagatan has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and RadioShack. The Motley Fool is short RadioShack. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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