Best Buy (BBY, Financial) is well positioned for growth. Its complete merchandise assortments, robust multi-channel execution and lower expenses have allowed the company to increase its earnings more than 23% to $1.48 per share in the fourth quarter 2015, up from $1.20 earnings per share last year. This easily beats the analysts’ estimates of $1.35 earnings per share for the quarter.
Also, its revenue rose 1.3% to $14.2 billion for the quarter due to strong sales for large televisions and mobile phones. These categories helped the company to offset the weak demand in the tablet segment. However, its revenue fell short of $14.3 billion consensus estimates for the quarter.
Better times ahead
Looking forward, the company remains focused with its strategic growth initiatives that should accelerate its sales momentum in fiscal 2016.
Additionally, it remains committed to speed up the expansion of the growing categories. At present it is working on the structural barriers at the entry level for large appliance and mobile phones. It plans to open approximately 50 extra Pacific Kitchen and Home stores-within-a-store this year. This will enhance its total count to 177 Pacific Kitchen stores that should fetch extra sales to the company this year. Also, it is extending its installment bidding spending capability online that should contribute to its growth going forward.
Meanwhile, the company remains on track to proliferate its connected home, health and wearable businesses this year. It is strategically optimizing the assortments along with its multi-channel customer experiences that should contribute significantly to its top line growth in the future. Also, it plans to grow its branded exclusive and private label assortments.
These assortments will certainly lead to better margins for Best Buy going forward. In fact, the company plans to enlarge its secondary market growth strategy that should provide greater visibility and accessibility of its products to its customers across the region. Moreover, it continues to make progress on the promotional front with appealing pricing strategies.
This should attract more traffic across its stores and online. It is capitalizing on its promotional events such as new mobile programs, wedding gift registry and many other life events that should build healthy relationship with its customers.
Apart from these initiatives, the company is investing in the e-commerce technology platforms, retails, services and in the supply chain. It has specific programs and initiatives with investment plans for each of these categories. These categories remain quite promising in the future. To support the growth in the mobile platform it is investing in the new technology development center in Seattle that will enhance its e-commerce capabilities. In retail, it is planning to increase its sales effectiveness by introducing an expert service and training for associates in order to enhance its in-store customer experience.
Conclusion
Best Buy undoubtedly is poised for growth. It is executing various initiatives that will contribute endlessly to its top line growth in the future. Also, its effort with its Renew Blue should lead to better bottom line growth in the coming years. The analysts expect its earnings to grow at CAGR of 12.76% for the next five years. This signifies reasonable earnings growth in the long-run. Moreover, it has PEG ratio of 1.14 that looks quite favorable to its growth in the future.
It is trading at the forward P/E of 12.59, which is slightly higher than the trailing P/E of 10.34 that suggest that the stock is little expensive. However, BBY has a lot of growth potential that should attract investors. Its balance sheet carries total cash of $3.89 billion, quite enough to cover its total debt of 1.62 billion. It has operating cash flow of $1.94 billion and levered free cash flow of $1.14 billion.
