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Is Best Buy a Smart Stock to Buy Now?

By Matthew Frankel, CFP® – Dec 26, 2021 at 6:51AM

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The consumer electronics giant has an impressive history, but what about its growth potential?

Best Buy (BBY) has one of the most impressive histories of any brick-and-mortar retailer when it comes to adapting its business to thrive in an e-commerce world. However, in this Fool Live video clip, recorded on Dec. 13, contributor Matt Frankel discusses whether he'd buy the stock now or not. 

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Matt Frankel: This was Best Buy. About 10 years ago, Best Buy did one of the most successful business pivots of any retailer I've seen. They nailed the pivot to omnichannel. They completely nailed it. I don't think anyone would disagree on that. Remember just going to Best Buy over 10 years ago and how much of the floor space was taken up by DVDs? Wasted space all over their stores.

They really did a great job of reducing their square footage, utilizing their store better, getting people in the door, getting people to buy their products there with price-matching guarantees. Because if you remember, for a long time the big problem was people would go to Best Buy to look at things, and then buy them on Amazon (AMZN) or somewhere online where it was cheaper. They really solved that problem well. There are a bunch of opportunities going forward.

There is, for example, the same-day delivery. I live in Columbia, South Carolina. We can't get same-day anything out here. I had a router delivered same-day delivery from my local Best Buy. Their same-day delivery volume is up 400% year over year. They offer twice as many products same-day as they did a year ago. That's a big expansion opportunity going forward which they seem to be getting right.

They are suffering from supply chain issues. Their growth recently because of that and because they were an early beneficiary of the pandemic, I feel like a lot of people pre-loaded their electronic spending. People needed a laptop for work. They bought one last year when they had to work at home. They needed to upgrade their wireless infrastructure. When let's just say your company starts a livestreaming platform, like this one, like I did, they're going to get it last year. Best Buy's sales were essentially flat year over year in the most-recent quarter. They are suffering from supply chain disruptions, too. They're having issues getting inventory.

I don't see this holiday quarter as being as great, and they've already warned that margins are going to drop next year. As supply chain issues work out and the economy normalizes, the pricing power that they have, it's going to deteriorate a little bit as well. They warned that they're going to have more discounts and things like that next year. Out of all these, I see the risk/ reward from here not being as a great. I think their pivot to omnichannel was fantastic. A lot of other retailers can learn a lot of lessons from Best Buy.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool owns and recommends Amazon and Best Buy. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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