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Why Best Buy Shares Tumbled

By Jeremy Bowman - Jan 16, 2014 at 11:07PM

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Is this meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Best Buy (BBY 3.17%) fell off a cliff today, ending down 29% as the company reported disappointing holiday sales.

So what: In an update ahead of its official earnings report in February, the big-box retailer said domestic same-store sales declined 0.9%, and said it expected operating margins to fall by 175 to 185 points. While that was far from the worst report to come out of the retail industry during the last couple of weeks, it jolted investors, who had pumped up the stock on a supposed turnaround. CEO Hubert Joly cited the extremely promotional environment over the holiday season for the offbeat performance.

Now what: While the electronics retailer has made strides under Joly, cutting costs and revamping the stores through partnerships with Samsung and other major brands, the company still seems to be operating at a structural disadvantage against the likes of Amazon.com and a shifting retail environment. Given that imbalance, it seems hard to bet on the retailer long term. Today's fall seems nothing more than an unsurprising correction for a stock that had more than tripled in the last year.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
BBY
$78.76 (3.17%) $2.42
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$142.75 (3.57%) $4.92

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