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Bear of the Day: Best Buy (BBY)

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Today’s “Bull of the Day” is in an industry that got an unexpected boost from the Covid-19 pandemic and subsequent changes in consumer behavior.

The “Bear of the Day” was actually in a similar situation - though unfortunately it appears that the party may be over.

Best Buy (BBY - Free Report) did a great job adapting to the restrictions on in-person shopping, expanding online offerings and providing fast shipping and curbside pickup options to customers. That allowed the company to capitalize on trends toward increased purchases of consumer electronics.

For a while, it was pure magic. To work from home, customers needed laptops, cameras and microphones, plus modems and routers to make it all work smoothly from their new “offices.” Once the work day was over, they would also need televisions, video games, phones and pretty much everything else Best Buy sells. They even had extra money. Savings from forgoing in-person entertainment and government relief funds increasingly found their way into those purchases.

For four quarters in a row, Best Buy increased net earnings and beat the Zacks Consensus Estimates, even as they were rising.

The share price kept pace, reaching a new all-time high of $124.89/share recently. Investors who bought the shares near the March 2020 lows have more than doubled their investments.

Unfortunately, Best Buy also finds themselves in competition with the two most formidable competitors in the history of retail, so it’s going to be difficult to stay on the same positive trajectory. Walmart (WMT - Free Report) has about 12 times the market capitalization of Best Buy and Amazon (AMZN - Free Report) is fifty times bigger. That gives them pricing power on both sides of a retail sale and also the ability to add new products and services.

That leaves Best Buy earnings estimates moving in the wrong direction. Best Buy earns a Zacks Rank #5 (Strong Sell).

Amazon’s Prime service not only brings in revenue, it creates customer loyalty. It’s so easy to buy what you need on Amazon, have it delivered to your door and even return it if necessary that consumers increasingly don’t bother to leave the house at all – even when they can.

The company recently introduced a similar customer loyalty program called “Best Buy Beta” that costs $199/year, but it remains to be seen whether the program will gain the kind of traction that Prime has

Revenue forecasts for Best Buy show stagnating sales, up or down 2% YoY..

In contrast, Amazon keeps churning out double-digit gains, year after year.

If you’ve been a Best buy shareholder, you’ve seen the company make some remarkable gains during what could have been a terribly difficult situation. Going forward however, conditions look to be getting much more difficult and there are other retail and e-commerce bets that look a lot better.

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Amazon.com, Inc. (AMZN) - free report >>

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Best Buy Co., Inc. (BBY) - free report >>

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