Is Best Buy Now a Bargain?

Best Buy's (NYSE: BBY  ) quarterly results were impressive, but some investors panicked anyway -- possibly spooked by the shadow of holiday price wars.

The electronics retailer said fiscal third-quarter earnings surged 336.5%, to $227 million, or $0.53 per share. However, that's partially the result of a one-time charge last year. Excluding that, net income still increased 56.6%.

Quarterly revenue increased 4.6%, to $12 billion, and same-store sales rose 1.7%, versus a 5.3% drop this time last year. In more good news, Best Buy said it gained 230 basis points of market share.

November was a particularly strong month for sales, with an 8.4% jump in comps. The company became a retail destination on Black Friday weekend, with low-double-digit same-store sales growth on that Friday and Saturday. Like many other retailers, Best Buy's online sales performed admirably, up more than 20%.

Best Buy raised its fiscal 2010 sales and earnings guidance. But it also projected lower gross margin in the fiscal fourth quarter, citing consumer interest in lower-margin versions of notebook computers and flatscreen TVs. Those gloomy tidings could have prompted investors' panic attack.

Before it gets to Q4, Best Buy will have to survive the holiday price wars. On Black Friday, consumers demanded rock-bottom deals, driving retailers like Wal-Mart (NYSE: WMT  ) , Amazon.com (Nasdaq: AMZN  ) , and Target (NYSE: TGT  ) into dog-eat-dog price-slashing mode to woo cautious shoppers. Best Buy, of course, has to compete with all these names -- and beat their prices.

In that light, is Best Buy truly a better stock buy than Wal-Mart? The latter company definitely appeals to newly frugal shoppers facing tough times. Personally, though, I've always thought Best Buy's customer-centric approach to retailing made it a solid investment idea for the long haul, as weaker rivals like RadioShack (NYSE: RSH  ) wither.

Although Best Buy's falling margins aren't worth celebrating, that sort of slump is simply the retail reality for now. I believe the company's strong enough to excel over the long haul, especially given its increased 2010 guidance. And it certainly won't be one of the retailers enjoying its last Christmas.

Is Best Buy's price an opportunity today, or a warning of worse things to come? Sound off in the comments boxes below.

Best Buy and Amazon.com are Motley Fool Stock Advisor picks. Best Buy and Wal-Mart are Inside Value picks. The Fool owns shares of Best Buy. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.


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  • Report this Comment On December 15, 2009, at 5:16 PM, Pmccorm wrote:

    Good article, I think Mr. Market can not see past its own nose!! These numbers reflect BB's cost cutting efforts as well as the disappearance of Circuit City. This stock should go only up from this point.

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