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Best Buy's (NYSE: BBY  ) been sneaking its way back into the pack of market darlings. The consumer-electronics retailer is up 46% this year through yesterday's close, currently trading at levels last seen in mid-October.

It's not as if there's been a wave of positive developments. Best Buy went on to post a disappointing fiscal third quarter, and analysts see a sharp decline in profitability when the chain posts its holiday-quarter results next week. The Wall Street Journal and Reuters also reported last week that disgruntled founder Richard Schulze may be moving away from an outright buyout of the company.

However, that didn't stop analysts at Barclays Capital and Stifel Nicolaus from upgrading shares of Best Buy yesterday. They're giving the retailer a pass in the near term as CEO Hubert Joly repositions the company. Instead of waiting for signs of stability, the analysts want to be ahead of the curve.

Yes, margins will be a mess in the near term. The decision made this week to price-match (NASDAQ: AMZN  ) year-round after a trial holiday run is brazen. It will mean selling items at lower markups, and possibly even at a loss. However, Best Buy needs to restore its reputation as a source for competitively priced consumer electronics before it can begin to grow on the bottom line again.

The Wall Street pros are encouraged by the rise of Android at the expense of Apple (NASDAQ: AAPL  ) , a sentiment that was voiced last month by BB&T Capital Markets analyst Anthony Chukumba. Best Buy sells Apple and Android devices, but Apple itself provides a slicker retail experience at its namesake stores for its gear. Android's success gives Best Buy a shot at competing with non-Apple retailers.

Analysts are also holding out for a boom in smart technology to rekindle appliance sales, but it remains to be seen whether that will pan out for Best Buy. The 3-D TV revolution didn't help. The holiday quarter's debut of Windows 8 and Wii U couldn't spare Best Buy from flat holiday sales as PC and video-game sales sputtered.

I remain skeptical, even though it's now fashionable to warm up to Best Buy. There is little that Joly can do to compete with the prices from bare-boned e-tailers. The migration of media to digital solutions leaves Best Buy out in the cold there.

However, it's certainly reasonable to see Best Buy's sales improving in 2013 if the economy continues to bounce back, even as it loses market share to Amazon and digital content distributors. The retailer is also gaining traction with its @BestBuy_Deals Twitter feed with Amazon-like flash sales, closing in on 250,000 followers.

The long-term outlook is bleak for Best Buy, but this afternoon I closed out my bearish CAPS call on Best Buy. It was good for a 51% gain since I initiated the call in late 2011. Barring a privatization, there will probably be another great time to bet against the company.

Next week's report will be a bad one, but if Joly can get enough investors to buy into his long-term strategy, it won't matter.

Dive deep into Best Buy
The battle between bricks-and-mortar companies and e-commerce rages on, with Best Buy caught in the middle. After what might have been its most tumultuous year in history, there are now even more unanswered questions about the future for the big-box electronics retailer. How will new leadership perform? Will old leadership take the company private? Will a smaller store format work out for both the company and its brave investors? Should you be one such brave investor? To help answer all these questions, The Motley Fool has released a new premium research report detailing the opportunities -- and the risks -- in store for Best Buy. Simply click here now to claim your comprehensive report today.

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  • Report this Comment On February 20, 2013, at 11:26 PM, mistacy wrote:

    "Best Buy needs to restore its reputation as a source for competitively priced consumer electronics before it can begin to grow on the bottom line again." Since when selling at a loss helps to grow a business bottom line?

  • Report this Comment On February 25, 2013, at 12:43 PM, TMFBreakerRick wrote:

    Mistacy, the key word in that sentence is BEFORE.

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