Despite competition from rivals like Wal-Mart (NYSE:WMT) and Circuit City (NYSE:CC), it's not like Best Buy (NYSE:BBY) didn't have an overall good year. Of course, its most recent quarter shook some investors up ahead of the all-important holiday season.

Best Buy's fourth quarter for last year's fiscal year included a 15% increase in revenues, earnings up 24%, and increasing gross and operating margins. My Foolish colleague Nathan Parmelee covered the quarter, and while he may not have thought the shares were particularly cheap at that time, he admitted he considered Best Buy a solid company he likes to keep an eye on.

The first quarter at Best Buy implied that no slowdown was in effect for the electronics retailer; its earnings increased 38% and sales were up 14%. Comps increased 4.9%. Strengths included high-priced merchandise as well as cost-cutting.

The second quarter delivered more of the same, with a 22% increase in profit and a 13% uptick in revenues; comps increased 3.7%. I covered that earnings announcement, when investors seemed to feel very confident about the retailer as it spoke enthusiastically about upcoming catalysts like the holiday season, the coming launch of Microsoft's (NASDAQ:MSFT) Windows Vista, and video-game launches from Sony (NYSE:SNE) and Nintendo.

That brings us to Best Buy's most recent quarter -- it seemed to make some investors feel downright blue, judging by the fact that stock dropped in reaction to the numbers. Best Buy's profits increased 8.7%, less than analysts expected, although sales increased by 15.5% and comps were up 4.8%. Best Buy took a hit on margins in order to woo shoppers with low prices for some of the hottest electronics. It had already become clear that a price war was brewing for the holiday season, and apparently Best Buy decided to take an aggressive stance (and said it believes it took market share in the process).

Best Buy's a longtime Motley Fool Stock Advisor recommendation, and David Gardner has described it as one of the "evergreen" companies amongst his picks. As for its long-term strategy, its customer-centric initiatives make a lot of sense to me as it seeks to differentiate itself from the competitors named above, as well as companies like struggling RadioShack (NYSE:RSH) and even virtual mall (NASDAQ:AMZN).

There may be some degree of negative sentiment about Best Buy at the moment, but how does the CAPS community feel about it? Let's take a look.

CAPS Rating


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Bull Ratio


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Data current as of Dec. 22, 2006.

As you can see, the majority of CAPS players think highly of Best Buy as an investment.

When it comes to CAPS pitches, I notice a recurring theme. High-definition, or HD, televisions going mainstream seemed to be a common element folks found pitch-worthy about Best Buy. However, for a more generalized pitch, here's one from CAPS player Worldfrog:

"Best Buy is a solid company with a good balance sheet and I believe strong long term growth prospects. The stock is fairly volatile, and quite frankly, is close to fairly valued today, but management has proven quite capable of growing the company in the past, and I expect them to continue to do so in the future. The company has recently initiated another round of stock buybacks, which I think indicates management's belief that the stock is undervalued, in addition to raising the dividend. The yield is small (less than 1%), but I suspect that this will be the Wal-Mart of electronics stores in a few more years."

Despite what might be viewed as current pessimism, Best Buy shares have appreciated 13.8% in the last year. And while investors might be shaken for the short term, there's always Best Buy's long-term strategies to consider -- like its innovative customer-centric approach. It will be interesting to watch and see if Best Buy can continue to win market share in its highly competitive niche in 2007.

The best of further Foolishness:

Check out the other companies included in "The Motley Fool's 2006 in Review and 2007 Preview" special.

If you like stocks like Best Buy, you can see what other companies have been recommended in Motley Fool Stock Advisor , which picked Best Buy (as well as and has a return of 72% vs. 30% for the S&P. Wal-Mart and Microsoft have been recommended by Motley Fool Inside Value.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.