Best Buy: A Bargain You Should Resist

U.S. retail sales have been clocking modest increases in recent months, but Best Buy (NYSE: BBY  ) hasn't been one of the beneficiaries, judging by its latest quarterly results. This gives more credence to the theory that the retailer's best days are behind it.

Best Buy's third-quarter net income fell 29%, to $154 million, or $0.42 per share. Revenue increased 1.7%, to $12.1 billion, and same-store sales inched up a mere 0.3%. Best Buy resorted to discounting to lure customers with sales in mobile computing, TVs, and movies, and unfortunately for Best Buy, many customers went for lower-margin promotional items.

The competitive landscape is brutal; Best Buy shares the electronics space with retailers like RadioShack (NYSE: RSH  ) , Conn's (Nasdaq: CONN  ) , and hhgregg. Meanwhile, hot electronics are widely available from big discounters like Wal-Mart (NYSE: WMT  ) , Target (NYSE: TGT  ) , and Costco (Nasdaq: COST  ) .

The elephant in the room continues to be Amazon.com (Nasdaq: AMZN  ) . CNBC commentators have been referring to Best Buy as a "showroom" for Amazon for some time now, and I have to admit that is a good way to describe the continued massive threat from the online superstore.

Best Buy's shares are getting slammed today, and, of course, there's a point when the pessimism surrounding a stock can be so overdone that it becomes a great bargain. However, that's not the case if the company in question is losing its competitive edge.

Best Buy is currently trading at just 6 times forward earnings and a PEG ratio of just 1.02. While these multiples sound cheap, make this a "bargain" you can resist. The continued sense that things just keep getting worse for Best Buy's growth and profitability give good reason to wait on the sidelines for signs of forward progress.

Have you heard about the Costco of Latin America? Find out more in our special free report, The Motley Fool's Top Stock for 2012.