Best Buy Almost a Buy

I wonder which company has produced more Minnesota millionaires -- med-tech titan Medtronic or electronics retailer Best Buy (NYSE:BBY). Whatever the answer, I still believe that Best Buy, a Motley Fool Stock Advisor selection, is a top-notch retailer in a market category that seems to be evergreen.

Second-quarter results seemed to be more or less OK. Best Buy's sales were up a bit more than 10%, comp-store sales were up about 3.5%, and margins improved modestly. If you go along with the company's retroactive adjustments to the year-ago numbers to reflect stock compensation expensing, year-over-year earnings growth was on the order of 48%. And if you don't? Well, earnings growth was still 25%, and that's not bad.

Sales trends seem to be pretty stable at this point. Flat-panel TVs and MP3 players continue to be the hottest items, with triple-digit same-store sales growth in each category. Other hot items include notebook computers and digital cameras. On the flip side, analog TVs, telephones, and desktops continue to be weak, and DVD/CD sales were sluggish as well.

Looking at Best Buy's own segments, consumer electronics sales grew 11.4% on a comparable basis and appliances grew 10.9%, while home offices and entertainment software sales were down 0.7% and 7.2%, respectively.

It would seem as though investors really didn't care to hear management's earnings guidance. It trimmed estimates for the next quarter by about 12% (vs. mean estimates) and full-year guidance by about 5%. That, in turn, sent the stock down as much as 10% in early trading on Tuesday.

Frankly, I'm not that troubled by the guidance. Yes, it's almost always better to see higher guidance, not lower, but we're not talking about the end of the line for Best Buy. I still think it's highly competitive with Wal-Mart (NYSE:WMT) and Circuit City (NYSE:CC) and not in any imminent danger. Although the outlook for the economy is admittedly more mixed, I don't think American shoppers are going to abandon the latest gadgets and gizmos from Apple (NASDAQ:AAPL) or Sony (NYSE:SNE) just yet.

I have admittedly high standards for any stock I buy, and Best Buy isn't quite there yet in terms of appreciation potential. Nevertheless, that doesn't mean that you shouldn't do your own due diligence and decide for yourself whether it's the right sort of stock for your portfolio.

For more gadget takes:

• News Flash? Yeah, Right.
• A Nano Step for Apple?
• Stocks for the Next Generation
• The Pointy End of Technology

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).