On Monday Dec. 30, 2013, JPMorgan added Best Buy (NYSE:BBY) to its list of nine value stocks to outperform growth stocks in 2014. The firm noted both Best Buy's transformational stores, its 1.7% dividend yield, and its particularly low price-to-sales ratio. However, after gains of 255% in 2013, is Best Buy really presenting a value opportunity?

Best Buy appears cheap
When you compare Best Buy to the S&P 500 index, it most definitely appears cheap.

The company trades at just seven times its operating cash flow and 0.3 times 12-month sales; the S&P 500 trades at 1.6 times sales. Best Buy's price-to-sales ratio is especially important as it's a core metric of the company's value case, as seen with JPMorgan's call.

However, comparing one company or industry to the broader market can often be misleading, and to appropriately determine upside in a stock and its value, one must compare similar companies. Therefore, let's look at peers hhgregg (NYSE:HGG), RadioShack (NYSE:RSHCQ), and the world's largest retailer, Wal-Mart Stores (NYSE:WMT)

Let's meet the peers!
While hhgregg, RadioShack, and Wal-Mart can give us a better idea of Best Buy's valuation, this is not an apples-to-apples comparison.

hhgregg is perhaps the most similar to Best Buy, posting an annual gain of 100%. hhgregg has slight margin improvements, similar sales performance, and a fairly strong balance sheet. Thus, the electronics retailer has been considered by some to be a good trade-along stock with Best Buy

RadioShack seems about one bad year short of bankruptcy, having seen its stock decline 80% over the last five years. Yet despite poor margins and a rapid fall in same-store sales, the company's $4.1 billion in annual revenue makes it a legitimate peer in the electronics-retail space.

Wal-Mart is the king of all retail, or the absolute standard to which valuation in retail is compared. The company's growth is often a direct reflection of economic performance, thus making its valuation/growth important in determining Best Buy's value or lack thereof.

How do they compare?
As previously stated, the key point for Best Buy bulls is the company's very cheap price-to-sales ratio. Hence, let's look at a few key metrics, and pay close attention to those metrics most watched by retail investors.


Price to Sales

2014 Expected Sales Growth

Price to Operating Cash Flow

Operating Margin

Best Buy




















Right away, let's kill the suspense: Best Buy is not all that impressive, nor is it presenting a great deal of value!

Best Buy bulls will note that Wal-Mart trades with an 85% price-to-sales premium. However, these same bulls should look at RadioShack, and what they'll notice is that companies with better fundamentals trade at higher premiums.

RadioShack trades at 20% the premium of Best Buy relative to sales, but you can clearly see a large difference in both growth and operating efficiency. Hence, Wal-Mart is 85% more expensive than Best Buy, but rightfully so!

Wal-Mart is expected to produce six times the growth in 2014, and its operating margins are 150% better than Best Buy's. Therefore, if 0.5 times sales is the standard in this space, then Best Buy would need to perform on a similar level to Wal-Mart, which is clearly not occurring at this point in time.

A surprising observation
One unexpected fact revealed by the chart above is that hhgregg is in fact very similar to Best Buy but significantly cheaper.

hhgregg trades at a deep discount to sales versus Best Buy, yet is expecting faster growth, trades at a deeper discount to operating cash-flow, and has comparable margins. Hence, if you're going to imply that Best Buy is a value stock for 2014, then what's hhgregg?

The answer to that question might just be a great under-the-radar stock that could significantly outperform its peer. Hence, hhgregg might should be on your radar as a value stock to watch for 2014, but definitely not Best Buy. 

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Fool contributor Brian Nichols has no position in any stocks mentioned. The Motley Fool owns shares of JPMorgan Chase. 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 Motley Fool has a disclosure policy.