Shares of Best Buy
How it got here
Today's drop was a reaction to CEO Brian Dunn's resignation just two weeks after announcing a major strategic shift for the company and a fourth-quarter loss of $4.89 per share. Since then, shares have plunged, and when Dunn threw in the towel, investors kicked their selling into high gear, pushing the stock to a new low.
This has really been a long, slow dive for Best Buy, driven by competitors and consumers' increasing preference to shop online. Amazon.com
A value? Or a value trap?
What investors are now left with is a company that's making solid profits but has seen growth stall out. On a value basis, Best Buy looks cheap, but its growth rate looks anemic, even compared with discount giants.
2011 Revenue Growth
Sources: fool.com and Yahoo! Finance.
The company's growth days are behind it, but profits are expected to continue at a strong rate. This looks like a great value, but beware of catching a falling knife.
Strategically, the future doesn't look good for brick-and-mortar electronics retailers like Best Buy and Radio Shack
If Best Buy can leverage its service side with the Geek Squad and reduce its retail footprint to a more manageable size, I could see the company surviving, but when retailers stop growing, the story usually doesn't end well. Our CAPS community has already dropped Best Buy to a dreaded one-star rating, and I'm inclined to agree that the stock isn't a great buy right now. When shares stop plunging day after day, the stock may be worth another look, but only if Best Buy can prove that it can transition from a growth machine to a cash cow. And that's a lot to ask a retailer to do.
Fool contributor Travis Hoium has no position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw.
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