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Best Buy (NYSE: BBY ) delivered a shocker along with its third-quarter results yesterday, leading to a plunge in its share price the likes of which nobody's seen for eight long years. Should investors take the hint and unplug Best Buy shares from their portfolios?
Net income dropped 4.4% to $217 million, or $0.54 per share. Revenue dipped 1% to $11.9 billion, and same-store sales fell 3.3%.
Those tidings are pretty disappointing, especially given the close proximity to the holidays, which are supposed to be a boon to gadget buying. However, the really big -- and disturbing -- tidbit of information was the company's loss of market share. Earlier this year, Best Buy was triumphantly gaining domestic market share, in part because of the demise of rival Circuit City. This late-year reversal of fortune doesn't bode well.
It's doubtful that smaller, often struggling electronics retailers like RadioShack (NYSE: RSH ) or Conn's (Nasdaq: CONN ) are giving Best Buy "the business" (or rather, taking it away). The major threat seems to come from big electronics discounters such as Wal-Mart (NYSE: WMT ) , Target (NYSE: TGT ) , Costco (Nasdaq: COST ) , and Amazon.com (Nasdaq: AMZN ) .
Generally, I would say that now's a great time to buy Best Buy shares. I've always liked its "customer-centric" mission, which I felt differentiated it from retail rivals. However, this most recent quarter does make me wonder whether Best Buy's mission is going wrong. Do U.S. customers seriously care only about rock-bottom prices in the New Normal environment? Is Best Buy making strategic errors that usher customers straight into rivals' waiting arms?
In short, the company seems a little more caveat emptor right now. Best Buy trades at 10 times earnings -- cheaper than Wal-Mart, with its price-to-earnings ratio of 13, and Target, which trades at 15 times earnings. (It still seems safer than snapping up a retailer like Conn's, though.) Waiting to see whether the company can reverse its market-share losses might be the better course of action at the moment. If an electronics retailer can't report better tidings ahead of the holidays, when can it?
What do you think? Should investors buy Best Buy now, or is it losing traction to rivals? What competitor do you consider its biggest threat? Let loose in the comments box below.