Shares of Best Buy (BBY -2.19%) hit a 52-week low yesterday. Let's look at how it got here and see whether clouds lie ahead.
How it got here
To say it's been a bad couple of years for Best Buy would be an understatement. The rug has been pulled out from under the company that once dominated electronics. Same-store sales have fallen, and the company can't seem to gain any traction against the likes of Amazon.com (AMZN -1.35%) online or big-box retailers such as Target (TGT -0.67%) and Wal-Mart (WMT -0.35%) that can offer both a TV and a gallon of milk.
To make matters worse, the company's management situation has been a mess. CEO Brian Dunn quit when the board began investigating an inappropriate relationship he was having with an employee, and Chairman and founder Richard Schulze lost his job for apparently covering up Dunn's relationship .
Schulze made a short-lived attempt to come back and buy the company, but that, too, went nowhere.
The latest mess is the company's hiring of Hubert Joly, a veteran of the hospitality and restaurant business, who was appointed as CEO in August. Obviously, no one on Wall Street thinks Joly can do the job, because the stock continues to fall and the company's financials continue to get worse.
All of this leaves this leaves Best Buy lagging Amazon, Target, and Wal-Mart by a long shot on the market over the past five years.
BBY Total Return Price data by YCharts
And look at the deterioration in the company's financials. Even in the tough retail space, rivals are performing far better than Best Buy.
| Company |
Price/Book |
Quarterly Revenue Growth |
Profit Margin (TTM) |
Quarterly Earnings Growth |
|---|---|---|---|---|
|
Best Buy |
1.5 |
(2.8%) |
(2.4%) |
(90.6%) |
|
Amazon |
13.4 |
26.9% |
0.07% |
N/A |
|
Target |
2.6 |
3.3% |
4.1% |
0% |
|
Wal-Mart |
3.6 |
4.5% |
3.5% |
5.7% |
Source: Yahoo! Finance.
The question now is whether Best Buy can turn things around.
What's next?
Betting on a turnaround for Best Buy is like playing craps -- it's a complete gamble. There's really no reason to think conditions will improve soon, especially considering the company's warning that profits would fall "significantly" from last year . A bet on a turnaround is really a bet that the company will be able to cut costs quickly and move into the online business and compete with Amazon. I'm not sure either of those things is realistic.
CAPS members are betting against the stock, giving it a one-star rating. At last count, 787 players have made an underperform call.
I'm not ready to make an underperform call, but I'm certainly not buying the stock today. Best Buy's best days are behind it if management can't make a major shift in strategy. It isn't impossible; it's just a very, very long shot.
