Best Buy has been a favored investment for gurus such as David Einhorn, Joel Greenblatt and Leon Cooperman. However, shares of BBY continue to sink, leaving many to wonder if BBY is a classic value trap.
Best Buy Co. said Tuesday its third-quarter net income fell 29% as the electronics retailer cut prices to drives sales and traffic during the all-important holiday season. Revenue rose 2% to $12.1 billion.
Shares of BBY tumbled 12% on the news.
Net income for the three months ended November 26 fell to $154 million, or 42 cents per share. That compares with $217 million, or 54 cents per share, last year.
Perhaps most disconcerting is the fact that same-store sales appear to have plateaued. Same store sales were only up 1% from last year leading many analysts to believe that BBY must shut stores in order to maintain profitability.
Value investors have been attracted by the low P/E and clean balance sheet at BBY.
The company reaffirmed its full-year guidance of adjusted net income of $3.35 to $3.65 per share which means that shares trade at less than 8x earnings.
The company only has $711 million of long-term debt which is manageable given its steady earnings stream.
The primary concerns appear to be both macro issues and increased competition.
Best Buy has high margins and savvy consumers know that you can often save 25% by shopping online.
Secondly, many analysts feel that the U.S. consumer is tapped out and will be forced to deleverage in the coming years. Some anticipate that the glory years of increased consumer spending may be over as consumers re-trench.