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Key takeaways
- Best Buy stock has fallen 30% in 2022, some analysts believe the stock is undervalued.
- The company is working hard to reenergize itself after the pandemic and widespread supply chain issues.
- Along with its dividend, Best Buy is positioning itself to be a leader in specialty retail.
- Best Buy shares rallied 2.06% to $76.24 yesterday (Friday September 9).
Is Best Buy stock undervalued? Some investors seem to think so. The electronics retailer's stock has been steadily declining, and some stock analysts are saying it's an excellent time to buy. So what's going on with Best Buy, and is its stock a bargain?
Best Buy stock news
Best Buy's stock price has tumbled almost 50% from its high of $134.11 in November 2021 to a low of $65 in July 2022. The company warned investors about a slowdown throughout its fiscal year 2023, which began at the end of January 2022. Before the pandemic, Best Buy had been on a multi-year turnaround to bring its operation back into profitability.
The stock had a somewhat volatile performance and a steep decline in price just before the pandemic started, then reached stock price highs as stimulus spending helped people buy more of the products offered at Best Buy.
In 2021, Best Buy saw an increase in revenue of 8% to reach $47.3 billion, and a growth of 10% for the fiscal year 2022, with $51.8 billion in total revenue. However, the company had declining revenues for the first two quarters of its current fiscal year.
Now the company is suffering from the same problems as all major retailers in the form of supply chain issues, lagging sales and inventory piling up. Consumers are spending less now that the stimulus money has dried up, and life is headed toward a post-pandemic state. This has resulted in fewer people buying big-ticket items such as appliances and consumer electronics.
The supply chain issues for electronics made it more difficult for retailers to get reliable inventory across most categories, but they are now lessening as production and distribution start to return to normal levels.
In 2019, the company predicted $50 billion in revenue by the end of the fiscal year 2025. It has abandoned this prediction to take a cautious outlook until operations stabilize.
Best Buy income statement breakdown
Best Buy's organization is a single division consisting of retail stores across the United States. For its fiscal year 2022, GAAP operating income grew 110 basis points to 6%. It generated over $6.5 billion of free cash flow, with $4.2 billion returned to shareholders through dividends and share repurchases. The fiscal year 2022 non-GAAP return on investment was 30.8%, an increase of about 840 basis points over 2020.
Its net income for the fiscal year 2022 dropped by $2.62 per share for a net income of $626 million, down from $816 million in the fiscal year 2021. However, it earned $2.73 per share, matching Wall Street's earnings expectations. Same-store sales fell 2.3% during the final quarter of the fiscal year, underperforming the company's expectations of a 2% decline. For the fiscal year 2023, Best Buy expects revenue between $49.3 billion and $50.8 billion, below the $51.05 billion expected by analysts.
Best Buy balance sheet review
For the fiscal year 2022 ending 1/31/2022, Best Buy reported total assets of $17.5 billion, a decrease from the fiscal year 2021 of $19 billion. It has current liabilities of $10.67 billion, slightly increasing from $10.5 billion in 2021. The total capitalization for the fiscal year 2022 was $4.15 billion, a decrease from $5.7 billion in 2021.
Its working capital at the end of the fiscal year 2022 was negative $135 million, down from $2.02 billion in 2021. Best Buy's total debt for 2022 was $3.88 billion, down from $3.99 billion in 2021. The total outstanding shares in 2022 were 227,400 million, a decrease from 257,000 million in 2021.
Is Best Buy stock undervalued?
It's challenging to say whether Best Buy's stock is undervalued or if it's returning to its cyclical patterns of steady increases followed by sharp declines. Some analysts feel that the stock is undervalued, while others think that the stock won't see much advancement in the foreseeable future.
Best Buy is frequently compared to Target and its higher-value stock price to show that Best Buy is trading below fair valuation. However, the comparison is limited because Best Buy is purely an electronics and appliance retailer, while Target sells everything from soft goods to groceries, small kitchen appliances and electronics.
Best Buy is frequently compared to Targetand its higher-value stock price to show that Best Buy is trading below fair valuation. However, the comparison is limited because Best Buy is purely an electronics and appliance retailer, while Target sells everything from soft goods to groceries, small kitchen appliances, and electronics.
It's challenging to compare Best Buy's stock to other major brick-and-mortar retailers as it's a survivor of an era where major electronics retailers came and went with few survivors. Instead, it’s better to examine the company's merits to determine if it's undervalued and worth holding long-term.
Best Buy has managed to keep most of its retail stores open before and after the pandemic. In 2020, the company had 977 stores with just 21 closing by 2021, for a total of 956 locations still open. Best Buy has been slowly shuttering stores, but the attrition rate of brick-and-mortar outlets isn’t extreme. Other major retailers closed stores in 2021 in lower numbers, but tend to sell a broader range of goods and can readily weather changes in buying habits.
Even though Best Buy is closing stores, it's now opening a new store concept known as Best Buy Outlets. A handful of stores have opened in 2022, with more planned shortly. The outlet stores collect open box items, returns and other clearance items from stores in the region and put them on the floor for sale. This enables the retailer to profit from most items they sell through the outlet stores.
People will always need electronics and appliances to get them through their daily lives, and Best Buy has positioned itself to provide those needs. Retailers like Amazon, Walmart, Home Depot and Costco wouldn't be able to easily fill these gaps if Best Buy were to go out of business. In these areas, Best Buy has the edge over other retailers in the form of convenience and competitiveness, allowing the retailer to keep moving forward in terms of store operations and profitability.
Ownership of Best Buy stock comes with a dividend, an attractive feature for those who want to hold the stock long-term. Combine this with Best Buy's plan to stabilize and re-forecast its plans in the next couple of years, and you get a stock that's at least reliable in its performance.
The bottom line
While Best Buy isn't on the verge of collapse, there are a lot of unknowns about its potential future growth. Will consumers continue with the trend of shopping online versus in-store? Will the rise in the prices of electronics force some customers to seek cheaper alternatives? For now, Best Buy is clearly going to continue positioning itself as best-in-class in this category. As long as the company can continue to change as consumer habits change, to stay on top of trends, it should be around for a long time.
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