About Best Buy
It feels as though every single time we walk into a Best Buy, it is just about one of the most deflated, unexciting, doom and gloom-filled retail environments to have ever existed.
There always tends to be one person laid back in a chair right as you walk through the automatic sliding doors, four or so other equally unenthused employees with blue shirts, probably hoping that whoever walks into their respective section doesn’t have any questions to ask, so they can just skate off to their lunch early and run out the clock for the rest of their shift.
And, of course, do it all over again the next day.
While we can’t say this is exactly what goes on in the minds of the retailer’s employees, it certainly feels like it as a customer.
At the off chance that someone says they will help you in a moment, that moment becomes a minute, which becomes a few minutes which usually leads to us leaving the store so unimpressed and worse, from a business perspective, not making a purchase at one of Best Buy’s 1,000+ physical store locations.
Putting our brief, honest and fair perspective of being a customer (or really not) at Best Buy, for those who aren’t as familiar with this St. Paul, Minnesota-headquartered technology retailer, Best Buy is pretty much just exactly that.
From computers of all shapes, sizes and uses, TVs, headphones, in-store technical support (through its subsidiary by the name of Geek Squad) and so many other supplemental products such as printers, ink for said printers and a range of other household appliances as well (for example, refrigerators), Best Buy is essentially the Walmart of technology focused retail.
Even though our views of the stores and their operations from a customer service standpoint aren’t exactly favorable, this company’s stock (NYSE: BBY) might still be attractive from a long-term investment standpoint.
Let’s hope this company’s core financials and metrics are a lot better than the state of its in-store customer service operations.
Best Buy’s stock financials
At the time of this writing, Best Buy is a $16.05 billion company with share price of just above $73, a price-to-earnings (P/E) ratio of 12.56 all while distributing an annual dividend of $3.68 to its shareholder base.
Given this preliminary information, shares of Best Buy’s stock (NYSE: BBY) seems relatively inexpensive given its price-to-earnings ratio of 11.20, whereas it is commonly held that a P/E of 20 indicates that a stock is trading at exactly fair value and anything lower implies it is undervalued relative to its actual, intrinsic worth.
It also definitely doesn’t hurt that this company shells out a sizable dividend to its shareholders each quarter as a sort of reward for owning stock in the company.
Moving onto some more pressing matters, according to the company’s balance sheet, Best Buy’s executive team is in charge of around $15.8 billion in terms of total assets along with approximately $13 billion in terms of total liabilities, which, considering that this company operates in the retail sector and probably has loads of floating inventory, makes sense, although it doesn’t make us feel that much better.
Namely, although this company, as established and large as it is, will probably be able to draw on its creditors if need be, this still isn’t a great place to be balance sheet-wise, especially given the current state of the economy, not to mention the retail domination and major competitive threat that Amazon is imposing on Best Buy and its peers, year after year.
We view this company’s balance sheet as not very encouraging, as it wouldn’t really take a whole lot for it to become upside down (i.e., more total liabilities than total assets), especially if inventory keeps piling up and cutting all too severely into its profit margins.
Onto the company’s income statement, Best Buy’s total annual revenues since 2019 have generally remained in the mid-to-high $40 billion area code, reaching a bounded high of around $51.7 billion in 2022, likely due to the company (as many other companies did during this time period) hiking the prices of some (if not most) of its goods in order to combat inflationary pressures, among others.
We’re not too concerned, all things considered, with Best Buy’s ability to generate mid-to-high $40 billion in total revenue each year moving forward, however, if Amazon continues to eat at its lunch and Best Buy doesn’t successfully pivot and perhaps consider selling more of its products and services online and cut down its workforce and store count overall, we could see this company’s revenues dropping off a bit to lower levels, which is, to say the least, mildly concerning to us.
Regarding this company’s cash flow statement, its net income and total cash from operations have been both positive and consistent, which isn’t all that surprising to us and thus isn’t really a good nor bad thing, just something that frankly should be expected of companies as large and established as Best Buy.
Best Buy’s stock fundamentals
Being that retail, well, is sadly retail, trailing twelve month (TTM) net profit margins tend to stay relatively muted, even for the big guys since, in order to stay competitive and maintain market share, companies such as Best Buy are tasked with keeping their prices as low as is practical.
This is one of the primary reasons we were not shocked in the slightest to find that this company’s TTM net profit margin, according to TD Ameritrade’s platform, sits down at 3.06% to the industry’s average of 8.32%.
Nevertheless, this scares us a bit.
For a company as large and seasoned as Best Buy (yes, we have mentioned this a few times now but it needs to be emphasized), especially given that it typically sells high-priced (and thus high margin) technological supplements (i.e., computers, monitors, TVs, etc..), we didn’t necessarily expect this company’s TTM net profit margin to be astoundingly high, however, we did expect it to be much more competitive with respect to the industry’s average.
For whatever reason(s), this just isn’t the case and the fact of the matter is, from our perspective, this company’s TTM net profit margin needs work.
Additionally, the company’s TTM returns on both assets and investments need some tuning up as well, as, according to the figures displayed on TD Ameritrade’s platform, Best Buy’s are both notably lower than that of the industry’s averages too.
Should you buy Best Buy stock?
Amazon is by far this company’s biggest threat.
With little to no physical locations, a much broader assortment of technology goodies and much, much better customer service, this company in question isn’t likely to thrive anytime soon, unless, from our vantage point, it cuts some more financial fat, specifically regarding its physical store locations, especially as shrink (i.e., retail theft) continues to rise at an alarming rate, along with a few other expenses that could feasibly be cut.
If the company were to put out a widespread, clear plan to massively cut back on the numbers of its physical brick-and-mortar stores and shift its efforts to online products and solutions somehow favorably differentiated from those of Amazon, we’d become much more interested in this company’s stock.
However, until then, this stock is most certainly not a best buy.
The irony.
We give Best Buy’s stock (NYSE: BBY) a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.