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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 (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.

Best Buy, Costco, and Wal-Mart are Motley Fool Inside Value recommendations., Best Buy, and Costco are Motley Fool Stock Advisor selections. Wal-Mart is a Motley Fool Global Gains pick. Motley Fool Options has recommended buying calls on Best Buy. The Fool owns shares of Best Buy, Costco, and Wal-Mart. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. 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.

Read/Post Comments (5) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 15, 2010, at 3:48 PM, aguadaboca wrote:

    No 'watch button" here, but buy for Jan 2011 bounce, as Funds are probably dumping to get it off their year end holdings so they don't look stupid!

  • Report this Comment On December 15, 2010, at 3:59 PM, Momentum21 wrote:

    I agree with aguadaboca...while I don't love BBY I will be keeping watch for a possible entry if it gets closer to $33.

    If I miss it I won't sweat it. I just think there is some life left in this business and the selling is damaging but temporary.

  • Report this Comment On December 16, 2010, at 8:30 AM, summertimeVA wrote:

    Man, I bought at 43 thinking Circuit city is out, Canada is big, the Euro was 10 cents stronger at that time (I live in Germany) Best buy is a good buy, what can go wrong with it? Today it's trading at bargain prices but purely from a strategy perspective I would rather buy Amazon, Walmart as their strategy is multipronged, cheap, big discounts and huge coverage. Thank god the USD climbed up and the Euro lost weight bringing down my actual loses. I still have not sold and dont think doubling down will help me as only a miracle in sales can help Best buy climb back to 43 until 1st quarter 2011.

    P.S- Momentum- it will hit 33 but my advice is that their are other stocks where your return is better.

  • Report this Comment On December 16, 2010, at 4:47 PM, misviki wrote:

    BBY's customer service need's an upgrade. Even while I owned the stock (sold Monday) I found I was shopping at Costco. Better prices and no problem with returns or Costco's guarantee.

  • Report this Comment On December 20, 2010, at 8:55 AM, steffed wrote:

    The deceptive sale practices of Best Buy will keep this stock from ever being of value.

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