Best Buy Shares Dropped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of electronics retailer Best Buy (NYSE: BBY  ) plunged 11% on Tuesday after its quarterly results disappointed Wall Street.

So what: Best Buy sales have been helped recently by bargain-hungry shoppers, but today's results -- third-quarter earnings fell 29% -- show just how badly those discounts are eating into profits. Management is naturally doing its best to compete against fierce online foe Amazon (Nasdaq: AMZN  ) , as well as big-box discounters Wal-Mart (NYSE: WMT  ) and Target (NYSE: TGT  ) , but the trend of shrinking margins is triggering concerns over its long-term profitability.

Now what: I wouldn't be so quick to pounce on today's plunge. Management did reiterate its full-year EPS guidance of $3.35-$3.65 on revenue of $51 billion to $52.5 billion, but it's obvious that the major competitive challenges facing Best Buy aren't going away anytime soon. With the sluggish economy likely to continue pushing customers toward lower-cost rivals, the shares seem like an easy pass.

Interested in more info on Best Buy? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool owns shares of Best Buy, Amazon, and Wal-Mart. Motley Fool newsletter services have recommended writing covered calls in Best Buy. Motley Fool newsletter services have recommended buying shares of Amazon and Wal-Mart, as well as creating a diagonal call position in Wal-Mart. Try any of our Foolish newsletter services free for 30 days.

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 Fool's disclosure policy always gets a perfect score.


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  • Report this Comment On December 13, 2011, at 5:27 PM, cc06 wrote:

    Best Buy needs to get a better format for their advertising inserts. It's so boring I usually throw it away without even looking at it. They need something to make me want to open it (it is an awkward size). I'm not a tech nerd, so there doesn't seem to be a reason for me to go to a Best Buy store. They need to wake up to the over 60 crowd.

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