I do not have a whole lot to add here other than voice my support for buying shares in Best Buy BBY. To be completely forthright I have not done a whole lot of research on Best Buy or any other retailers but here is why I think these shares deserve a look.
The last several year’s earnings were as follows:
2010 – 3.43
2009 – 3.10
2008 – 2.88
2007 – 3.12
I think EPS may be the best way to take a look at this since depreciation has been close to capital expenditures and doesn’t provide much additional cash flow.
Remember 2008, which was one of the worst year’s ever (remember the fall of Bear Stearns, Lehman Bros., and the backstop of AIG etc.?), and the world was coming to an end? Well, in that year Best Buy earned $2.88 per share and each of the following two years since they have earned well over $3 per share which is basically 10x earnings. Plus during this time TVs have been ridiculously cheap. From what I can gather the street seems to believe no one will buy a TV for years to come (which may be true) and when they do they will be purchasing everything via Amazon (which I don’t buy for a minute). Is this really the end of Best Buy? If it is wouldn’t it be the end of every retailer in the world? This would mean mall’s would be vacant and REIT’s would become extinct, yet every other retailer and REIT is trading at pretty hefty valuations. Okay, I may be over exaggerating a bit here and 10x earnings does not leave a lot of margin of safety especially when they came bia QE1 and QE2. In fact compared to my last write-up (Lihua International, Inc) which is trading for 4 – 6x earnings depending on how you value the company, Best Buy is a bit expensive.
My thinking goes as follows: First Best Buy has a pretty large footprint and doesn’t have a lot of meaningful competition besides Wal-Mart and Costco. Wal-Mart offers a pretty different product mix (as far as electronics go) than Best Buy does and not everyone is a member or shops at Costco. The person that shops at these 3 places are very different and those that want the type of product Best Buy sells isn’t going to Wal-Mart.
Second, Best Buy is not a growth story but has plenty of international growing to do. They have tried expanding into several countries, some successfully some not so successfully (they are pulling out of Turkey).
Third and probably my favorite part of them is that they are buying back stock. They have decreased their share count every year since 2004, except 2009 (see above remember when the world was coming to an end?). And they have indicated they are continuing to buy back stock going forward.
Fourth, their current assets are greater than their current liabilities and long-term debt combined and they pay roughly a 2% dividend, which they started paying in 2003 and have increased every year except 2004. In other words they are financially sound and they are increasing the value for shareholders.
Finally, the last straw for me was hedge fund manager David Einhorn (Greenlight Capital) disclosing in the past week that they have been buying stock in Best Buy at $33/share. This is pretty much why I have not spent the time looking into the company because I know I could never match that which Einhorn has. I know, “don’t substitute another person’s opinion for your own”. Typically that would be accurate; except when they are smarter than you and have purchased the stock for more than you have the opportunity to right now!
Conclusion: I am buying tomorrow. Will the stock go down? Probably. Will earnings decrease? Probably. Will people be buying tv’s in the near future? Probably no; I know I am not (let me know when there are as many 3D channels as HD and I don’t have to wear glasses). Will the stock double in the next several months? Doubt it. Will the stock beat the market over the next 5-10 years? I have no idea but I am pretty certain at current valuations it will not do any worse and if anything goes right for Best Buy over the next couple of years the market will definitely turn course and push the stock higher.
Disclosure:
As of this writing I own shares in Best Buy. This report is not a solicitation to buy or sell securities. We are not responsible for any losses resulting from purchasing or disposing of shares of Best Buy (BBY). You are advised to consult your financial advisor or conduct the due diligence yourself.
The last several year’s earnings were as follows:
2010 – 3.43
2009 – 3.10
2008 – 2.88
2007 – 3.12
I think EPS may be the best way to take a look at this since depreciation has been close to capital expenditures and doesn’t provide much additional cash flow.
Remember 2008, which was one of the worst year’s ever (remember the fall of Bear Stearns, Lehman Bros., and the backstop of AIG etc.?), and the world was coming to an end? Well, in that year Best Buy earned $2.88 per share and each of the following two years since they have earned well over $3 per share which is basically 10x earnings. Plus during this time TVs have been ridiculously cheap. From what I can gather the street seems to believe no one will buy a TV for years to come (which may be true) and when they do they will be purchasing everything via Amazon (which I don’t buy for a minute). Is this really the end of Best Buy? If it is wouldn’t it be the end of every retailer in the world? This would mean mall’s would be vacant and REIT’s would become extinct, yet every other retailer and REIT is trading at pretty hefty valuations. Okay, I may be over exaggerating a bit here and 10x earnings does not leave a lot of margin of safety especially when they came bia QE1 and QE2. In fact compared to my last write-up (Lihua International, Inc) which is trading for 4 – 6x earnings depending on how you value the company, Best Buy is a bit expensive.
My thinking goes as follows: First Best Buy has a pretty large footprint and doesn’t have a lot of meaningful competition besides Wal-Mart and Costco. Wal-Mart offers a pretty different product mix (as far as electronics go) than Best Buy does and not everyone is a member or shops at Costco. The person that shops at these 3 places are very different and those that want the type of product Best Buy sells isn’t going to Wal-Mart.
Second, Best Buy is not a growth story but has plenty of international growing to do. They have tried expanding into several countries, some successfully some not so successfully (they are pulling out of Turkey).
Third and probably my favorite part of them is that they are buying back stock. They have decreased their share count every year since 2004, except 2009 (see above remember when the world was coming to an end?). And they have indicated they are continuing to buy back stock going forward.
Fourth, their current assets are greater than their current liabilities and long-term debt combined and they pay roughly a 2% dividend, which they started paying in 2003 and have increased every year except 2004. In other words they are financially sound and they are increasing the value for shareholders.
Finally, the last straw for me was hedge fund manager David Einhorn (Greenlight Capital) disclosing in the past week that they have been buying stock in Best Buy at $33/share. This is pretty much why I have not spent the time looking into the company because I know I could never match that which Einhorn has. I know, “don’t substitute another person’s opinion for your own”. Typically that would be accurate; except when they are smarter than you and have purchased the stock for more than you have the opportunity to right now!
Conclusion: I am buying tomorrow. Will the stock go down? Probably. Will earnings decrease? Probably. Will people be buying tv’s in the near future? Probably no; I know I am not (let me know when there are as many 3D channels as HD and I don’t have to wear glasses). Will the stock double in the next several months? Doubt it. Will the stock beat the market over the next 5-10 years? I have no idea but I am pretty certain at current valuations it will not do any worse and if anything goes right for Best Buy over the next couple of years the market will definitely turn course and push the stock higher.
Disclosure:
As of this writing I own shares in Best Buy. This report is not a solicitation to buy or sell securities. We are not responsible for any losses resulting from purchasing or disposing of shares of Best Buy (BBY). You are advised to consult your financial advisor or conduct the due diligence yourself.
