Tuesday, March 1, 2011

Stock Analysis: Best Buy

Best Buy Inc. is the largest specialty electronics retailer in the United States. Best Buy has a 19% share  of the $170 billion dollar United States consumer electronics market. The stock has been hammered in recent weeks as Best Buy has been facing increased pressure from retail competitors. Shares of Best Buy are barely trading above their 52 week low. The short interest has increased and investors are abandoning the stock in droves. 

[The company has one of the best balance sheets in the retail sector with nearly $1 billion dollars in cash and $1.8 billion dollars in debt. Return on equity is high at nearly 24% and return on assets is respectable at 7%. Best Buy is currently trading at 10 times this year’s earnings and 9 times next year’s earnings. The stock is down a whopping 25% over the past month alone. The drop has been due to the recent earnings miss and lower foot traffic in its stores.

The company's biggest competitor is Walmart (WMT), which has been making a bigger push into the consumer electronics industry. Hhgregg has emerged as a major small cap contender in the sector. Both companies are fighting for the market share left by the Circuit City bankruptcy. Amazon is another large player that has been cutting into the online sales of Best Buy over the past few quarters, 

The company has one of the best balance sheets in the retail sector with nearly $1 billion dollars in cash and $1.8 billion dollars in debt. Return on equity is high at nearly 24% and return on assets is respectable at 7%. The stock looks like a solid value play over the next few years as sales should continue to grow as the economy rebounds. 

The dividend yield is still low but is improving at 1.9% Most of the risk has been taken out of the stock at its current levels. Investors can buy a solid franchise at a reasonable price. This is an investment that even Buffett would love. ]
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