If Motley Fool Stock Advisor selection Best Buy
With the release of its latest results, a subsequent 8% slide in recent trading suggests that its stock may be losing favor among its investing groupies as well. But let's keep it in perspective. This minor decline is hardly reminiscent of Vanilla Ice's bungee-jump drop down the music charts. Best Buy is the rule maker among consumer electronics retailers, not a one-hit wonder pseudo-rapper from a bygone era.
The poor reception to its latest press release shouldn't come as a surprise. An off-beat, weaker-than-anticipated holiday sales environment that challenged both Circuit City
For the fourth quarter, Best Buy's revenues increased 9% to $9.2 billion compared to the same period a year ago. However, operating margins declined 9% to 8.4%. The company placed partial blame for its profit pressure on stronger sales from low-margin products, including MP3 players and DVD movies.
Revenues for its fiscal 2005 were up 12% to $27.4 billion, from 4.3% comparable same-store sales. While Best Buy's operating margins declined in the fourth quarter, for the year operating profit levels remained at 5.3%, equal to its fiscal 2004 mark. Net earnings were jamming, up dramatically year over year as they climbed to $984 million, up 39.6%. Overall, its earnings came in at $2.94 per share (EPS) -- $2.79 in EPS from continuing operations.
Looking ahead, Best Buy projects fiscal 2006 sales to improve by 11% -- a slight decline from the 12% growth in fiscal 2005. Out of this revenue, the company expects to earn $2.95 to $3.10 per share (EPS) from continuing operations, or growth of around 9%. Analysts were anticipating its EPS to come in at around $3.31. However, Best Buy's estimates account for the expensing of stock options, while the analysts' consensus does not.
Is the recent weakness in Best Buy's stock attributed to a weaker fourth quarter, or perceived lowered expectations for 2006? Who knows? Perhaps head-banging investors are causing a mosh-pit frenzy, thinking the company's platinum record days are a thing of the past. Whatever the case, at a blended growth rate of 10%, this ticket appears steep for a stock trading at 17 times forward earnings. A patient investor should be able to find a better deal in the year ahead, on a ticket to the next Best Buy-apalooza.
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