One of the largest electronic retailers in the world, Best Buy Co., Inc. (NYSE/BBY), is at a crossroads. The future is looking bleak, at least according to investor sentiment, for what was once a mighty organization. Large format retailers have been difficult for stock picking as they’ve lost significant market share to online retailers. Consumers prefer to touch the product in the store and purchase the goods at home. Best Buy has been among several large retailers that has tried, and has so far failed, to overcome this hurdle. A great example of these difficulties is when its direct competition, Circuit City, filed for bankruptcy; yet Best Buy was still unable to significantly increase corporate earnings. Other large retailers like Borders Group Inc. have also filed bankruptcy due to the onslaught of online retail. This has led to investor sentiment turning negative toward any large-format, mall-oriented retail stores.
On the heels of continued declines in market share and poor investor sentiment, Best Buy had a recent scandal regarding former CEO Brian Dunn who had an alleged affair with a subordinate. This is yet another sign that management didn’t have the proper focus. Following Dunn’s resignation, the founder and largest shareholder of Best Buy Richard Schulze announced that he is resigning as Chairman of the Board and is interested in selling his 20% stake of the company.
Obviously this is a company deep in turmoil, not knowing what direction it wants to go. While it is announcing the closure of 50 stores and building smaller format operations, most analysts think it’s too little too late, leading to poor investor sentiment. Stock picking is difficult to begin with, but even more so when a new technology changes the rules of the game.
Even though investor sentiment is poor right now, I think it’s very positive that the founder is leaving. This means that the new CEO will not have him under his thumb. The founder has hand-picked the last several CEOs, which more than likely means that they were not allowed to make the decisions they wanted. Sometimes having an overbearing boss will prevent you from making the proper decision. As the founder is now about to leave, a new CEO might be the spark of life to revamp and revitalize the well-known name that is Best Buy—a shake-up is needed to shift investor sentiment.
Chart courtesy of www.StockCharts.com
While the stock has recently bounced up, significant headwinds remain for the stock to overcome. The 50% retracement area is of obvious significance as seen by the numerous times it’s been used as support and resistance going back to last year. This is an area of mixed investor sentiment, as the bulls and bears will battle it out. Personally I would not buy the stock at this point. I would want to see more positive technical indications as well as a solid plan that can ensure this business will be viable for the future. You’re never going to catch the ultimate top or bottom when stock picking, but you can lose a lot of money trying. Wait for management to be finalized and investor sentiment to start to turn before making a bullish call.