I like to find companies that live on what I call "the pointy end" -- the sharp intersection between important trends in the world. When these companies execute, they often find themselves pushed ahead by extremely strong market forces.
One example for me is Motley Fool Stock Advisor pick Best Buy (NYSE:BBY). Yeah, Best Buy is "just a retailer." Like Microsoft (NASDAQ:MSFT) and Dell (NASDAQ:DELL) are "just technology companies." Rather, I believe that Best Buy has a beachhead on a very favorable "pointy end" -- an excellent retail shopping experience that focuses on consumer electronics and entertainment.
Best Buy's first-quarter results support the notion that the company continues to do something right. Sales were up 12%, with overall same-store sales up 4.4%. With improvement on both the gross and operating margin lines, the company saw net income grow to $170 million for the period.
The hottest areas for Best Buy probably won't surprise too many techno fans. Digital TVs are still hot, and MP3 players were rocket-hot in the quarter with triple-digit same-store sales growth. On the flip side, analog TV sales continue to soften, as do sales of cell phones. Appliance sales continue on a steady-as-she-goes track and made up about 6% of sales.
Getting back atop my soapbox, I can see a lot of reasons to think that Best Buy has plenty of growth ahead of it. While Best Buy is No. 1 in the market (ahead of Wal-Mart (NYSE:WMT) and well ahead of CircuitCity (NYSE:CC)), it still doesn't control even 20%. Furthermore, the continued rollout of the Geek Squad service concept should only help over the long haul.
Coming back to my "pointy end" philosophy, I really like where Best Buy sits today. Ten years ago, nobody had heard of MP3 players and there were no HDTVs to buy. Now those are both major growth businesses, and I see this sort of trend continuing indefinitely.
Consumers love devices that make their lives easier and/or more pleasurable and they buy them up heartily. So I wouldn't expect the likes of Sony (NYSE:SNE) or Apple (NASDAQ:AAPL) to stop developing new products. And while direct purchases from online company stores will continue to grow, I believe your average customers will still do a lot of their electronics shopping at Best Buy.
Obviously, these shares had a better valuation before today's 10% rise (at press time). But relative to the company's competitors, financial performance, and ongoing prospects, I wouldn't say that the stock is terribly overvalued. So while there's nothing inherently wrong with buying a fairly valued (as opposed to overvalued) quality company, a little profit-taking in these shares could give investors the opportunity to come in with a slightly better margin of safety.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
