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Is Best Buy a Must-Own Retail Stock for Value, Dividends & Tech Growth?

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Best Buy (BBY - Free Report) shares have underperformed their industry and fallen well behind the S&P 500 over the last six months. The recent movement stands in contrast to the electronics retailer’s strong showing during the past two years, with it up 90% to double the benchmark index and big-box titan Walmart (WMT - Free Report) .

Let’s quickly dive into Best Buy ahead of its Q4 FY21 earnings release on Thursday, February 25 to see if it might be worth buying.

Growth Retail Market

Like all successful retailers, Best Buy has spent the last several years improving its digital commerce offerings. The company, which sells smartphones, TVs, connected-appliances, and nearly every other consumer electronics device under the sun, has been able to grow even though Target (TGT - Free Report) , Walmart, and other giants sell similar products.

Best Buy’s success in a crowded market that includes Amazon (AMZN - Free Report) , showcases the overall size of the consumer electronics space. The company has also benefitted from the remote work and school world, as people were forced to purchase laptops, tablets, and other devices to stay connected.  

The pandemic aside, tech devices and the broader consumer electronics space will continue to grow in our digital world. The firm is also set to benefit from the booming housing market, as well as general home improvement-style spending. Last year, U.S. home sales hit their highest levels since 2006. And the housing market is finally being driven by millennials, which makes its growth more sustainable.

What Else

The company is coming off a strong third quarter (period ended October 31) that saw it post 21% revenue growth. Meanwhile, its domestic online revenue soared 174% to $3.82 billion, to account for 35% of sales, up from 16% in the year-ago period. Plus, its adjusted earnings sored over 80%.

With this in mind, Zacks estimates call for BBY’s fourth quarter revenue to jump by over 13% to reach $17.19 billion and help lift its adjusted EPS figure by 20% to come in at $3.47 a share. Best Buy’s first quarter FY22 revenue is then expected to pop 15%, with earnings projected to skyrocket 57%.

Best Buy’s overall earnings revisions have trended higher and it has topped our bottom-line estimates by an average of 36% in the trailing four quarters.

The nearby chart showcases Best Buy's impressive run over the last five years, up 267% to crush its industry’s 175% average and TGT’s 142%. As we mentioned at the outset, though, BBY has cooled off recently.

BBY closed regular trading Tuesday at $115.50 a share, which put it about 7% off its November 2020 records. The stock also rests around the neutral level in terms of RSI at 52, with anything above 70 considered overbought and anything below 30 oversold.

Bottom Line

Even though Best Buy has crushed its industry over the last five years, it has consistently traded at a discount. At 15.1X forward 12-month earnings, BBY is trading in-line with its own year-long median and well below its industry’s 34.5X average. Investors might also be impressed to know BBY marks strong value compared to Target’s 21.5X and Walmart’s 23.9X.

Best Buy currently lands at a Zacks Rank #3 (Hold), alongside “A” grades for Growth and Value in our Style Scores system. The company’s 1.9% dividend also tops the recently-rising 10-year U.S. Treasury’s 1.3%, as well as Walmart’s 1.6%, and Target’s 1.5%. And 10 of the 16 brokerage recommendations that Zacks has for Best Buy come in at “Strong Buys,” with none below a “Hold.”

Therefore, long-term investors might want to consider Best Buy as a retail stock to add to their portfolios. Yet, it might be prudent to wait for it to report its results before diving in, especially amid the recent market volatility.

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