Best Buy Stock Should Be Avoided

Best Buy (NYSE: BBY  ) is the top-performing stock on the S&P 500 this year, up more than 117% since the beginning of January. But don't let that performance fool you. This is an ailing retailer to avoid like the plague.

Shares have rallied since last week's announcement that Samsung is installing semi-autonomous stores within each of the electronic retailer's big-box locations. The thought process here is simple: Best Buy has struggled over the past few years with lagging sales, and it needed some type of lift.

As an analyst told Forbes magazine: "[T]he Samsung partnership may boost Best Buy's service experience to electronics customers and help to eventually increase profit margins. If the combined service with Samsung increases customer traffic, it could help Best Buy win back leverage from suppliers such as Apple, boosting overall profits."

That's a big "if," particularly given Best Buy's track record when it comes to customer service.

More importantly, however, neither the Samsung agreement nor investors' mercy on its stock since the beginning of the year changes one critical fact: For most consumers, electronics are a commodity. As a result, price is the primary factor that dictates where people purchase them, and that accordingly channels potential Best Buy customers to the likes of Amazon.com and Costco.

It's true that Best Buy is now offering to match online prices. But all that does is transfer the pain from its top line down to its bottom line by way of the profit margin -- not something that would help Best Buy stock in any way, shape, or form.

Beyond all this, the executive leadership has been in a state of flux for some time now. A year ago this month, CEO Brian Dunn "resigned" after the head of human resources was said to have uncovered an affair between Dunn and a younger employee. The following month, its founder and chairman, Richard Schulze, was forced out for his failure to take action. Schulze subsequently mounted a failed attempt to take the company private before being invited back as chairman emeritus. And in the midst of all of this, the remaining board members hired a replacement CEO with no discernible retail experience.

Suffice it to say, this doesn't paint a pretty picture for the future success of Best Buy stock regardless of its recent performance. If you're looking for odds like these, in other words, you're better off going to Vegas, where at least you get free drinks.

Want to learn more about Best Buy?
The battle between bricks-and-mortar stores 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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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 April 11, 2013, at 7:00 PM, seamaj wrote:

    So far, the advice fool has given on Best Buy has been wrong. So who should be avoided on this one?

    Look at the numbers in the rise of the stocks, did anyone on Fool predict this? Nope.

    Fool is just a bashing ground for Best Buy.

    Posters who comment on the stock are usualy people who had bad experiences with the store, or who try to tank the stock with rumor, in my opinion.

    I'll keep my Best Buy stock, Thank You.

  • Report this Comment On April 11, 2013, at 10:29 PM, reww1234 wrote:

    Best Buy is not going anywhere! The fool is just amazon bulls.

  • Report this Comment On April 12, 2013, at 3:52 AM, TheBargainBin wrote:

    I posted an article over on the Motley Fool Blog Network in October claiming that Best Buy was incredibly cheap:

    http://beta.fool.com/thebargainbin/2012/10/26/best-buy-out-n...

    I added to my position at $11.85 per share, and obviously that's worked out extremely well. I wrote another article on Best Buy recently:

    http://beta.fool.com/thebargainbin/2013/04/01/the-flawed-log...

    I think that Best Buy could easily be worth $30-$40 per share.

  • Report this Comment On April 12, 2013, at 3:59 PM, FoolSucks111 wrote:

    Explain to me how you guys are taken as a legitimate source of information. You've been terribly wrong about BBY so far; and will continue to be wrong. You're so far up Amazon's butt it's idiotic. Fool just posts things to get their BS propaganda on Yahoo finance and help drive down BBY's stock.

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