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Here’s Why Best Buy May or May Not Be Your “Best Buy” After Earnings

Monday, May 23, 2022 | Chris Markoch
Here’s Why Best Buy May or May Not Be Your “Best Buy” After Earnings

BBY stock is not easy to slot into one specific category 

Best Buy (NYSE:BBY) is expected to be one of the more closely watched stocks this week. The company reports earnings after the market closes on Tuesday, May 24. This has been a lousy earnings season for most retail stocks. And the forecast is for Best Buy to miss on both the top and bottom lines.  

However, as a stock that was lumped into the risk-on tech sector as early as November, BBY stock is looking cheap by many conventional metrics. And it’s a company that has paid a reliable dividend that has been growing for the last 20 years.  

This makes the short-term outlook for Best Buy difficult to handicap. But here are some factors for both the bulls and the bears to consider. 

Earnings are Likely to be Lousy 

If the analysts tracked by MarketBeat are correct, Best Buy is likely to report first-quarter earnings of $1.57 per share. That’s a 30% decline from the same quarter in the prior year. Revenue is also expected to be lighter at $10.34 billion, an 11% year-over-year decline.  

And investors will be paying close attention to the company’s guidance for earnings and revenue. It seems likely that they’ll hear more talk about inflation and supply chain disruptions.  

The question that investors are wrestling with is whether these results are already priced into BBY stock. The stock is down 47% from its all-time high set in November 2021. And about half of that loss has occurred since the beginning of May. This coincides with the earnings reports from other retailers.  


Short Interest is Increasing 

Another reason to score one for the bears is the increase in short interest. In general, when short interest is rising it means that investors are turning more bearish on a stock. That being said, institutional ownership of BBY stock remains at about 80% and in the previous quarter, buying and selling were just about 50/50.  

BBY Stock is Inexpensive 

With a price-to-earnings (P/E) ratio of 7.33, Best Buy is not overvalued from a fundamental point of view. And a look at the company’s stock chart shows that it may be oversold. The relative strength indicator (RSI) for the stock is under 30. And while this isn’t always the most reliable indicator, it does give traders a benchmark.  

And Best Buy does offer a dividend that has been growing for the last 20 years. Recently that yield was over 5% and is still around 4.86% as of this writing. The company’s ability to keep growing the dividend will depend on the answer to the next question.  

How Big is the Best Buy Moat? 

Best Buy doesn’t fit neatly into the retail camp. That’s because of the company's heavy focus on electronic gadgets. The company is best known for selling televisions, computers, tablets, and other devices that consumers love. And more to the point, they are products that are increasingly becoming a need.  

As more individuals are starting their own businesses and turning passion projects into secondary revenue streams, there will be demand for the company’s products. And let’s not forget next quarter will have many recent high school graduates looking to update their tech before going off to college.  

The bottom line is consumers are cutting back, but I’ll believe that they’re cutting back on tech when iPhone sales drop dramatically. With no evidence of that happening yet, this is an area that can’t be ignored.  

The Bottom Line on Best Buy 

I won’t break any new ground when I say the outlook for BBY stock is similar to many stocks. If you’re looking for a quick profit, there are better options. However, if you have a long time horizon and the stomach for some risk, it looks like a good long-term investment. Even if the stock only delivers low single-digit growth in the short term, you can capture a nice dividend to boost your total return.  

 

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Best Buy (BBY)
3.0989 of 5 stars
$70.63+3.1%4.98%7.84Moderate Buy$96.06
Compare These Stocks  Add These Stocks to My Watchlist 

Should you invest $1,000 in Best Buy right now?

Before you consider Best Buy, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Best Buy wasn't on the list.

While Best Buy currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The 5 Stocks Here

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