Best Buy Investors Can Only Blame Themselves

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Best Buy (NYSE: BBY  ) shares hit yet a three-year high today, oblivious to another insider unloading a big chunk of shares.

CEO Hubert Joly sold nearly $17-million worth of company stock on Friday, netting roughly $10 million, after backing out the cost of exercising the options that made up the lion's share of the sale. Joly's contract required him to hold his awarded shares for at least two years, but the compensation committee cleared the way for the sale by waiving the final year. 

He had a reason for raising the money.

"Mr. Joly has recently gone through a divorce and needs to sell a portion of his holdings in order to cover the costs of that unfortunate event," a company spokesman said in a statement explaining why Joly was selling roughly 20% of his stake in the company that he took over a year ago.

You have to feel sorry for Brian Dunn, the former CEO who was let go last year after breaking a company rule by having an inappropriate relationship with a 29-year old employee. There was no waiver or rule leniency there. Then again, he did walk away with a $6.6-million severance package, so maybe he's the one who got the last laugh here.

Joly's sale isn't the only notable bigwig cashing out. Founder Richard Schulze entered into an automated selling plan to unload a chunk of what was his 20% stake in the retailer between October and March of next year. This was the same Schulze that was actually trying to team up with private-equity investors to take Best Buy private last year.

To be fair, Best Buy's stock has more than doubled since the time when Schulze wanted to buy the company back last summer. Cashing out makes sense.

You won't hear Schulze or Joly admit that they're selling because the stock's valuation has gotten out of whack after more than tripling so far in 2013. Schulze wants to diversify his assets; Joly has a divorce to settle. However, if the stock does peak here -- and it might -- investors will only be able to blame themselves. 

Joly has done a great job of shaving overhead at Best Buy, but there's no way that this company is as valuable as it was the last time it traded this high during the 2010 holiday shopping season. 

Best Buy still doesn't have a response to (NASDAQ: AMZN  ) and the showrooming trend that's been nibbling away at sales growth. Even in the chain's most recent quarter, revenue and comps dipped slightly. Amazon's North American sales soared 30% in its latest quarter.

Joly has helped improve margins at Best Buy -- and even the reputation is improving -- but until the shoppers start showing up again, it's hard to feel that this is a stock that deserves its multi-year highs. Its two most prolific insiders have moved to sell a lot of stock over the past month. That's a hard thing for bulls to ignore.

Three smart plays for retail investors
The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


Read/Post Comments (3) | Recommend This Article (0)

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 September 11, 2013, at 2:50 PM, Fido01 wrote:

    Yep, I even heard that we didn't land on the moon either! Hey guess what? You should leave the conspiracy theories to the discovery channel and get into evaluating business with real world perspective without speculating.

  • Report this Comment On September 11, 2013, at 2:58 PM, bammerone wrote:

    OK, wait a minute Rick. The two main examples of insider selling you cite are perfectly reasonable, and not any indication these executives have lost confidence in this company. 1) Joly sought and received approval to sell some of his stock options (awarded as part of a recruitment bonus when he walked away from his previous compnay and a bbunch of options) this is for a divorce to generate some cashola. What would you do if you needed to come up with 50% of your assets in cash - now, for a divorce. 2) Schulze is no longer looking to buy the company after having reached an agreement with the Board. He too is divesting PART of his stake, as per an agreemetn with the Board to divest. Nothing nefarious in either case. Further, we always tout tying compensation to performance. Well performance had been pretty damn good from my perspective as a stockholder. These two are still going to own a significant chunk of stock - in fact Joly is required to maintain a minimum level of shares in BBY.

  • Report this Comment On September 11, 2013, at 3:34 PM, mistacy wrote:

    Take your profit

    & run.

Add your comment.

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: 2633114, ~/Articles/ArticleHandler.aspx, 9/28/2016 9:49:34 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 minute ago Sponsored by:
DOW 18,339.24 110.94 0.61%
S&P 500 2,171.37 11.44 0.53%
NASD 5,318.55 12.84 0.24%

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

9/28/2016 4:04 PM
BBY $37.68 Down -0.57 -1.49%
Best Buy CAPS Rating: *
AMZN $828.72 Up +12.61 +1.55% CAPS Rating: ****