Best Buy Deserves More Respect

Best Buy's (NYSE: BBY  ) first-quarter earnings report was no blowout, but value-minded investors should give the electronics retailer props nonetheless.

First-quarter net income decreased 12.3%, to $136 million, or $0.35 per share. Revenue increased 1.4%, to $10.94 billion, and same-store sales dropped 1.7% (versus last year's 2.8% comps increase). Still, Best Buy's earnings beat analysts' estimates, lending a more positive halo to the company's results.

Best Buy reported particular strength in mobile phone sales, with 28% comps growth in that area. Before investors get too excited, however, they should remember that the mobile phone market can be cyclical. Rival RadioShack (NYSE: RSH  ) leans heavily on that segment, and it's often reported choppy results over the years as different phones cycle in and out of fashion.

Electronics retailers in general face a tough competitive market; Best Buy contends not only with companies like RadioShack, Conn's (Nasdaq: CONN  ) , and hhgregg, but also with big-box, general interest discount retailers that also peddle electronics, like Wal-Mart (NYSE: WMT  ) , Costco (Nasdaq: COST  ) , and Target (NYSE: TGT  ) .

Best Buy's still a formidable contender in the electronics market, and I prefer its long-term outlook to weaker competitors like RadioShack (which reported a 30% quarterly profit decrease in April) and Conn's (which recently reported that its quarterly profit plunged and revenue decreased).

In other words, Best Buy's not likely to pull a Circuit City, and recent negativity has plunged Best Buy's shares into the bargain bin, trading at just 9 times this year's earnings. That's cheaper than big-box stocks like Wal-Mart, Target, and Costco right now. It's also cheaper than Conn's, a far weaker electronics retailer that still trades at 14 times this year's earnings.

The economy remains difficult, and even giants like Wal-Mart have delievered sluggish results. As many retailers start focusing on smaller locations, big-box stores' best days may be over. Still, Best Buy's got a great brand and cheap shares, and it deserves a lot more deference from investors.

The Motley Fool owns shares of Best Buy, RadioShack, Costco, and Wal-Mart. Motley Fool newsletter services have recommended buying shares of Wal-Mart, HHGregg, Costco, and Best Buy. Motley Fool newsletter services have recommended creating a diagonal call position in 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. For more on this and other topics, check back at Fool.com, or follow her on Twitter: @AlyceLomax. 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 (7) | Recommend This Article (7)

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 June 14, 2011, at 5:09 PM, stan8331 wrote:

    I agree that Best Buy is vastly superior to an atrocious retailer like Conn's, but nevertheless it's difficult for me to get excited about their future. Given the inherent advantages in price and selection that online outlets like Amazon and Newegg possess, a brick and mortar company such as Best Buy really needs to find a way to make going to their store a pleasurable, value-added experience. Right now, for me, going into a Best Buy store does not provide anything close to that sort of experience.

  • Report this Comment On June 15, 2011, at 1:13 AM, Risky88 wrote:

    best buy costs more than almost anywhere else online.

    its getting to the point that theres nothing special about it especially when you have stores like walmart expanding their electronics and starting to soon sell appliances. Guess what bestbuy mostly sells?

    On top of that the average customer has no idea how to price match on their website or if you even can where on amazon its just a few easy clicks

    may not be a circuit city today or tomm

    but then again we are NOT short term investors

    fool on brotha

  • Report this Comment On June 15, 2011, at 7:10 AM, TMFLomax wrote:

    Thanks for the thoughts here. Yeah, maybe the online factor is a big negative component for Best Buy right now.

    What might be much scarier is how much Conn's rose yesterday...

  • Report this Comment On June 15, 2011, at 12:59 PM, BlazerMania wrote:

    I just moved into a new house and decided to buy myself a nice, new TV. I did most of my research online at various "consumer reports" style websites. Once I decided on a model, it was time to price shop.

    I only checked two places: Best Buy and Amazon. Best Buy's price - $1,950. Amazon's price - $1,650. And because I'm an Amazon Prime member I get free two-day shipping on purchases and free returns. Guess which retailer I went with. How can Best Buy ever compete with that?

    Best Buy may be the best of the big box retailers, but that's like having the highest cabin on a sinking ship. It might take longer, but they'll still drown eventually.

    Fletch

    Long AMZN

  • Report this Comment On June 15, 2011, at 1:08 PM, mikecart1 wrote:

    Best Buy died when it stopped being a best buy.

  • Report this Comment On June 15, 2011, at 4:02 PM, pbk100 wrote:

    Best Buy needs a radical change of business model to survive for long. They offer a valuable service as a showroom, allowing you to compare dozens of models of whatever you're after. But whereas in the past this service was monetized through in-store sales, increasingly it isn't - shoppers now find the item they want, scan the barcode with their smartphone and find the best price online. Unless Best Buy can find a way to get a commission from online retailers or from manufacturers they seem set for a terminal - and fairly rapid - decline.

  • Report this Comment On June 21, 2011, at 11:16 AM, TMFLomax wrote:

    Thanks for all the thoughts here folks. You've definitely given me some food for thought as I write a follow-up article on Best Buy today...

    Best,

    Alyce

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