Best Buy Can Get Better in the Long RunBBY) shares have risen impressively in the past one month, gaining almost 25% on the stock market after the company reported impressive second-quarter results. The company beat expectations on all key fronts such as revenue, earnings, and comp sales. But, the good thing is that Best Buy should be able to sustain this impressive run going forward due to the moves that it is adopting as discussed below.
Smart moves to drive the business
Recently, Best Buy integrated the Future Shop and Best Buy brands in Canada under the Best Buy brand.
In the Domestic business category, the NPD-reported consumer electronics segment declined 5.3% and its comparable sales, without the impact of installment billing, fell just 0.7% as Best Buy continued to benefit from solid product cycles in big screen televisions and technologically-advanced mobile phones along with strong growth in the key appliance category.
The key gains achieved through rising sales of electronic items including television and mobile phones were partially offset by the impacts of the consolidation of Best Buy brands and Future Shop in Canada.
From a merchandising viewpoint, equivalent sales growth in mobile phones, televisions and key appliances was significantly balanced by falls in computing and tablets. There was also continued revenue falls in services.
Best Buy witnessed a mixed performance for consumer electronics and merchandising segments with former illustrating continued revenue decline and latter depicting healthy sales growth for major appliances, televisions and mobile phones.
The strategic consolidation of the Best Buy, Future Shop stores and websites in Canada under the Best Buy brand led to the complete shutdown of 66 Future Shop stores and the renovation of the outstanding 65 Future Shop stores to the Best Buy brand. Going forward, Best Buy estimates to bear the extra charges in $10 million to $90 million range which are mainly linked to non-restructuring asset impairments with continued investments in the Canadian renovation.
In my opinion, investors are advised to buy Best Buy shares as it has a trailing P/E ratio of 14.5 and a forward P/E ratio of 12.9. The PEG ratio of 1.34 also indicates healthy growth and is comparable to the industry’s average of 1.07. Moreover, Best Buy’s growth plans are significantly supported by its strong balance sheet with a strong cash position of $3.74 billion as against a weaker debt position of $1.61 billion only.
Hence, Best Buy can easily continue investing in its business going forward by taking more debt to the market and take advantage of the low interest rates. So, I think that it will be a good idea for investors to buy this stock for the long run.
Published on Sep 25, 2015By Vinay Singh