Novice Investing - Best Buy Stock Is Not A Buy

Date: Thursday 20th 2008f November 2008 03:57:15 PM

Best Buy Stock Is Not A Buy - 12/13/2005

By: Novice Investing Staff

Best Buy Co. Inc. (BBY) on Tuesday warned for its 4th quarter outlook while missing estimate for its 3rd quarter profit. It blamed the 'unusually high' selling general & administrative expense for the shortfall. Best Buy has been working to remodel a number of stores while launching Best Buy Canada at Quebec. Meanwhile, stock price fell 9% due to the news reaction.

Best Buy is the leader in consumer electronic retail stores with sales of $ 27.4 Billion on the latest fiscal year. Furthermore, it is still expected to grow earning by 16 % annually. Oh yes, the company also hold a positive net cash of $ 2.3 Billion on its balance sheet. That translates into $ 4.67 per share.

While the latest earning warning is not a happy news, Best Buy seem to have solid grounds in consumer electronic segment. Rival Circuit City Stores Inc. (CC) has lagged behind Best Buy in term of market shares. Walmart has been trying to sell electronics on its superstore but here is Best Buy with $ 20 + Billion in sales. The company is being proactive in initiating store remodeling program. In the short term, the cost may exceed expectation and that is what causes the earning short fall. In the long run, this store remodeling initiative will derive revenue up.

Meanwhile, investors have to be content with cheaper stock price. After the drop, Best Buy is trading at 15.6 times next fiscal year's estimate. It is not a good buy and yet it is not a terribly overvalued investment either.



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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Best Buy Co. Inc. (BBY) or any other securities.

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