Wow. Another great business selling at an attractive price. I have not done any type research on Best Buy (BBY) but looking at the numbers alone gets me excited. Especially considering Best Buy now appears on the top 25 stocks with a minimum market cap of 2000.
The Business According to Yahoo Finance
Best Buy Co., Inc., together with its subsidiaries, operates as a specialty retailer of consumer electronics, home office products, entertainment software, appliances, and related services primarily in the United States, Canada, and China.The company was founded in 1966. It was formerly known as Sound of Music, Inc. and changed its name to Best Buy Co., Inc. in 1983. Best Buy Co. is based in Richfield, Minnesota.
Why is Best Buy down?
My guess would be high energy prices and a weakening economy has put pressure on consumer spending.
Circuit City
Circuit City and Best Buy used to be the two publicly traded players in the electronic stores arena, but Circuit City has really struggled as of late as it continue to close stores. Its stock price reflects those struggles.
Magic Formula Numbers
As stated above, Best Buy (BBY) currently appears on the magic formula screen for the top 25 companies with a minimum market cap of 2000 million. According to magicformulainvesting.com, Best Buy currently has a pre-tax earnings yield of 13% and return on invested capital of 50-75%. Doing the numbers by hand I get an earnings yield of 14% and return on invested capital of 54.73%.
More Numbers…..
10 Yr AVG. ROA: 9.126%
10 YR AVG. ROE: 23.00%
10 YR AVG. P/E: 21.6
Current P/E: 12.57
Misc.
I am currently sitting on 10% cash. I plan to put a little bit more than half on BBY tomorrow morning.
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{ 3 comments… read them below or add one }
I agree with your assessment…in fact I own this one myself! What I like the most is they have clobbered the competition, but what’s a bit worrisome is that Walmart’s starting to sell some of the high volume electronics, though BBY will always have the rest of the electronics niche.
But the stock is overly depressed because of the economy, so I think it’s a good time to buy for the long term.
Look, some of your posts are pretty good, and you seem to have started off on the right path. However, you’re going to burn yourself if this is your level of analysis.
I think you have a bright future if you actually follow the things you’re reading.
Start of with Seth Klarman’s “Margin of Safety”. Then read “Poor Charlie’s Almanac”. Both are books on philosophy. If they excite you, and you feel happy that there are other rational people in this world - by all means stay in this business.
I’d warn you about the pitfalls of incomplete analysis - even with the shadow of “value” thrown over it.
On this particular post - Best Buy is facing competition that didn’t exist eight years ago. Start your analysis with the premise that you’re wrong. If you fail to find proof, go ahead and make the investment.
Otherwise, you’re just a speculator like the rest of them.
Also, value investing isn’t contrarian by form. It just so happens that it’s easier to find good ideas where other people aren’t looking.