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Why Best Buy Looks Like a Good Buy

April 17, 2014 | About:
jaggom

jaggom

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Best Buy (BBY), the world’s largest electronics chain, is reeling due to its declining position in the market. Best Buy shares have fallen this year due to decline in retail traffic, higher investments in pricing, and the negative impact of its new credit card agreement. In addition, an increase in warranty costs related to its products and lower rates on mobile service plans have also badly affected the company’s margins.

The Turnaround

However, Renew Blue is a well-defined program which has allowed it to see gains in the online business that has done well for Best Buy through cost-saving strategies. In addition, Best Buy’s online business grew more than 25% in 2013, as compared to 11% in 2012.

Best Buy has concrete strategies lined up for the current year. The company is focusing on digital sales. Best Buy is looking to roll out improved products that are driven by technology and services that will enhance the customer experience.

Best Buy is targeting customer behavior of how, where and when customers want their products and enhancing the online customer experience. It is also planning to introduce many new search elements in online shopping. These include search engine, tools, recommendations and product price information. The tool will enable customers to find products that they want to purchase. This should provide them a strong and seamless online experience.

These initiatives are bound to support the multi-channel customer experience and probably help Best Buy gain market share.

More Strategies

Best Buy has a supply chain as its USP with a powerful network of strategically located distribution centers. The company has witnessed substantial growth, enhanced online conversions, and has also benefited from stores comps with an improved ship-from-store strategy.

Best Buy has successfully introduced the ship-from-store facility to all of its 1,400 stores, and is planning to cover entire demand through its eight well-located distribution centers. The move will help speedy delivery of its online products and services to its entire customer base, along with lower costs.

As a part of the key initiative of Best Buy for floor space optimization, the company is focusing on providing more space to more profitable product categories. These include mobile phones and tablets through existing and new vendor partnerships.

In addition, to increase the foot-fall in its stores, Best Buy has opened 1,400 Samsung and 600 Microsoft (MSFT) Windows stores-in-stores. Best Buy also operates Apple (AAPL) product showcases in multiple stores. Best Buy is keen on attracting many new vendors to showcase their products and services.

Best Buy is focused on reducing prices for its products and services to remain competitive among peers such as Amazon (AMZN) through cutting its annualized costs by $1 billion.

Conclusion

An awful performance has brought down the stock to attractive valuation levels. The trailing P/E and forward P/E ratios of 17 and 10, respectively, indicate an increase in earnings and lowered costs, giving investors an ideal point of entry. Furthermore, Best Buy has a projected annual earnings growth rate of 14.54% for the next five years which further indicates that the stock could be a good buy at its cheap valuation.


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