52-Week-Low Alert: Best Buy

Shares of Best Buy (NYSE: BBY  ) hit a 52-week low today. Let's look at how it got here and see whether this is just the start of the storm.

How it got here
Today's drop was a reaction to CEO Brian Dunn's resignation just two weeks after announcing a major strategic shift for the company and a fourth-quarter loss of $4.89 per share. Since then, shares have plunged, and when Dunn threw in the towel, investors kicked their selling into high gear, pushing the stock to a new low.

This has really been a long, slow dive for Best Buy, driven by competitors and consumers' increasing preference to shop online. (Nasdaq: AMZN  ) is often pointed out as the culprit in Best Buy's downfall, but Target (NYSE: TGT  ) and Wal-Mart (NYSE: WMT  ) have probably played a bigger role. Best Buy used to be the only shop in town, with a wide selection of TVs, DVDs, and video games. Today, you can go to Target or Wal-Mart and pick up those items and a loaf of bread at the same time. It's no wonder these stocks have all outperformed Best Buy over the past year:

AMZN Chart

AMZN data by YCharts

A value? Or a value trap?
What investors are now left with is a company that's making solid profits but has seen growth stall out. On a value basis, Best Buy looks cheap, but its growth rate looks anemic, even compared with discount giants.



2011 Revenue Growth

Forward P/E

Best Buy 1.8 0.9% 5.8 11.3 40.6% 73.4
Target 2.4 3.7% 11.6
Wal-Mart 2.9 5.9% 11.3

Sources: and Yahoo! Finance.

The company's growth days are behind it, but profits are expected to continue at a strong rate. This looks like a great value, but beware of catching a falling knife.

What's next?
Strategically, the future doesn't look good for brick-and-mortar electronics retailers like Best Buy and Radio Shack (NYSE: RSH  ) . Circuit City has already shown that it's tough to survive when the new competition takes away market share, and these two may be headed in the same direction.

If Best Buy can leverage its service side with the Geek Squad and reduce its retail footprint to a more manageable size, I could see the company surviving, but when retailers stop growing, the story usually doesn't end well. Our CAPS community has already dropped Best Buy to a dreaded one-star rating, and I'm inclined to agree that the stock isn't a great buy right now. When shares stop plunging day after day, the stock may be worth another look, but only if Best Buy can prove that it can transition from a growth machine to a cash cow. And that's a lot to ask a retailer to do.

Fool contributor Travis Hoium has no position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw.

Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 (0) | Recommend This Article (1)

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1859015, ~/Articles/ArticleHandler.aspx, 10/22/2016 9:59:37 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:03 PM
BBY $39.46 Down -0.02 -0.05%
Best Buy CAPS Rating: *
AMZN $818.99 Up +8.67 +1.07% CAPS Rating: ****
RSHCQ $0.00 Down +0.00 +0.00%
RadioShack CAPS Rating: *
TGT $68.23 Up +0.52 +0.77%
Target CAPS Rating: ***
WMT $68.34 Down -0.39 -0.57%
Wal-Mart Stores CAPS Rating: ***