Best Buy Investors Should've Seen This Coming

Best Buy plunges on a blue Christmas.

Jan 16, 2014 at 12:43PM

Today's bloodbath in Best Buy (NYSE:BBY) could've been avoided if the market had merely paid attention.

Best Buy posted negative comps during holiday shopping season, and the language of the company's promotional nature to woo shoppers suggests that profitability's taking a hit for the quarter. Why were investors holding out for positive comps? Why were investors holding out for earnings growth? Why were investors holding out for both? It was never going to be possible to succeed on both levels, but now it seems as if Best Buy is failing on both.

There were two big red flags pointing to this morning's Best Buy update as the Red Wedding of the consumer electronics universe.

The first warning sign came last week when all of the publicly traded consumer electronics retailers fell sharply last week after a smaller rival posted horrendous results. Four prolific consumer electronics specialists saw their stocks tumble between 7% and 22% after hhgregg (NYSE:HGG) warned of double-digit declines in its consumer electronics, PC, and wireless categories. Best Buy was the relative winner of the lot, only down 7%. 

How could things have ended well for Best Buy after that? As small as hhgregg may be, it was clear that Best Buy only had a shot at either firm comps or earnings growth. You weren't going to sell unless you were discounting aggressively, and slashing prices or matching competitor prices would gnaw on gross margins. 

Then we saw GameStop (NYSE:GME) reveal the other warning sign. GameStop shares took a hit after hosing down its profit outlook for the quarter. Digging deeper into GameStop's carnage, we saw that it had no problem selling low-margin Xbox One and PS4 consoles. New hardware sales nearly doubled during the period. However, no one was buying the high-margin games that GameStop and Best Buy needed to make the next-gen console revolution pay off this season. GameStop's new software sales plunged 22.5%, resulting in a larger-than-expected decline in quarterly earnings despite the top-line improvement.  

Best Buy shares did inch lower when both of these events took place, but they should've fallen even harder. GameStop was offering Best Buy cheat codes that went unheeded, just as hhgregg's hit was dismissed as friendly fire.  

Today was obvious to anyone paying attention, and I'm not the only one who was saying it.

6 companies moving in the right direction
They said it couldn't be done. But David Gardner has proved them wrong time and time and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of GameStop. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers