Best Buy (BBY -0.01%) continues to beat the odds. Despite intense competition from the likes of Amazon and Walmart, the retail giant has found a way to remain vibrant amid an intensely competitive and fast-changing electronics market. The future remains unpredictable, and no expert can guarantee its continued success over the next five years. Nonetheless, Best Buy's prospects remain bright for the following three reasons.

1. Best Buy is adaptable

The rise of e-commerce certainly contributed to the decline of electronics stores such as Fry's Electronics, Circuit City, and CompUSA. Many believed Best Buy had turned into Amazon's showroom, and it would likely fail as a result. However, Best Buy fought back by cutting costs and matching Amazon's prices.

A young woman shops for flatscreen televisions inside an electronics store.

Image source: Getty Images.

This resilience became obvious again during the pandemic. Best Buy bolstered its online presence, instituted a curbside model, and offered free digital tech support while stores remained closed. Though the company suffered a brief revenue decline, it fared better than most other brick-and-mortar retailers.

Of course, analysts cannot forecast the next crisis or predict Best Buy's response. Nonetheless, the fact that is has found ways to adapt in the past bodes well for the future.

2. Best Buy's understanding of the market

Also, while that future indicates online shopping is here to stay, it has not replaced the need for physical stores. With some products, many consumers prefer to see and touch an item in person before deciding to buy.

This could explain why Best Buy has experienced success with its "stores within Best Buy" concept, where Best Buy devotes a part of the store to a major producer such as Apple or Samsung. This gives the manufacturer some control over how Best Buy displays its products while allowing customers to easily compare the products of different manufacturers.

Additionally, Best Buy recently introduced a membership plan to rival Amazon Prime and Walmart+ that it calls Best Buy Beta. Beta customers receive free shipping, free technical support, and free installations, among other benefits. 

This could attract customers who are passionate about electronics and would welcome the help with proper installs. Additionally, others who find electronic devices confusing might need technical support. Moreover, since general retailers would struggle to offers this level of service for electronic products, Beta could help Best Buy foster a deeper competitive advantage.

3. Best Buy's financials are in a good position

Finally, such offerings bolster the case for Best Buy stock, especially in its current position. Despite the challenging environment of fiscal 2021, which ended Jan. 30, the company still grew on an annual basis. Enterprise comparable sales for 2020 increased by almost 10% compared with 2019 levels. Also, net income surged by 17% due primarily to a 1% reduction in operating expenses.

Still, the company sees a slowdown coming. While Best Buy expects enterprise comparable sales to climb by about 20% in the first quarter of 2022, it expects sales to remain flat for the entire fiscal year. CFO Matt Bilunas forecasts lower electronics spending as travel and dining out become more frequent as the pandemic winds down.

Nonetheless, the company's finances remain healthy. Best Buy generated almost $4.2 billion in free cash flow during 2020. This allowed it to pay $568 million in dividends and buy back $284 million more in stock than it issued. It also hiked the dividend by 27% to $2.80 per share. This amounts to a cash return of 2.3%, significantly higher than the S&P 500 cash return of 1.4%.

The annual payout has also risen every year since Best Buy introduced regular dividends in 2004. This places Best Buy well on its way to the 25 consecutive yearly increases needed for Dividend Aristocrat status. The longer such streaks run, the more a stock depends on annual payout hikes, making Best Buy more appealing to income investors.

Best Buy stock price has also risen by just over 50% over the last year, a strong indication that stockholders have responded favorably to Best Buy's vision.

BBY Chart

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Despite that increase, Best Buy trades at approximately 17 times earnings. That multiple has not substantially changed over the last few years despite Best Buy's recent performance. It also remains well below Walmart's P/E ratio of 30 and Costco's multiple of close to 40 times earnings. That lower P/E ratio could help increase its appeal to value investors.

Investing in Best Buy

Best Buy continues to deliver for investors through its adaptability, personalized service, and healthy financials. Indeed, retail remains a challenging business in an uncertain, post-pandemic environment, and management admitted this in its prediction of flat sales growth during the upcoming fiscal year.

However, the best predictor of the retail stock's position in five years comes down to the management team. Under current management, it has prospered despite challenges from e-commerce and the surprise closures of the pandemic. These successes indicate Best Buy can move higher in the next five years despite an uncertain future.