Will Best Buy Stock Hit $50?
If Best Buy Co Inc (NYSE:BBY) has frustrated investors over the past few months, that’s because Best Buy stock has stagnated at around $29.00 to $32.00. Best Buy shares have moved up and down like a zigzag rollercoaster ride. Best Buy stock looked and felt uncomfortable based on its chart. That sense of frustration migrated from the trading floor to the boardroom and, on May 24, the company announced both the chief financial officer’s departure and a lower outlook.
Some might be forgiven for thinking that the “lower outlook” was a diversion strategy; keep expectations low to deliver the perception of growth. Indeed, there was no slowdown at all. Activity was actually blazing, as the second quarter’s performance has suggested. Best Buy stock has caught up as well, gaining 15.76%, reaching its highest price since a year ago. But this time, it’s different, and BBY stock appears to be heading straight toward the elusive $50.00 mark.
Best Buy stock has seen so many peaks and valleys that not even Sir Edmund Hillary of Mount Everest fame could make sense of it. But now, it seems that investors may have realized that after the electronics retailer, which underwent a major rationalization with the shutdown of the “Future Shop” brand, has a bullish year ahead. Certainly, that’s what an 11% net profit, or $182.0 million increase, would suggest to even the most cynical observer. Better still, excluding certain items, Best Buy’s earnings per share rose $0.57, trouncing the $0.43 consensus.
It’s Not Just Earnings
Such earnings came despite the fact that revenues were virtually unchanged at $8.53 billion. True, this figure was also, if only slightly, higher than expectations of $8.39 billion. But this is a key bullish factor, because it proves that the company has found a formula for much better management. It can deliver more profit for less. You don’t need an economist to interpret this as evidence of efficiency. Meanwhile, it does not hurt that U.S. sales were stronger, rising 0.8%. That simply shows that the appetite for electronics remains high.
Best Buy’s new CFO, Corie Barry, told current investors that its revenues should grow well enough in the second half of the year to compensate for a slight decline in the first six months. (Source: “Best Buy posts surprise Q2 earnings beat driven by strong online sales,” ZDNet, August 23, 2016.). At this point, there are no known obstacles preventing Best Buy shares from hitting $50.00, although we cannot account for the “black swans” or unpredictable disruptors.
The recent earnings have proven that some retailers, if they can get a few details right, can survive against the Amazon.com, Inc. (NASDAQ:AMZN) onslaught. There is another bullish factor that also bodes favorably for Best Buy stock. All of the performance improvements, the better earnings, and the promising guidance are not the result of myopic “cuts.” There is real growth behind this. This is why the stock has such an extent of “sustainability”—intended as an ability to sustain its gains.
Best Buy’s strategy of increasing sales in both brick-and-mortar operations, as well as online, is one of the key contributors to its recent successes. We had noted as much back in February. (Source: “Best Buy Co.: This Is Why Best Buy Stock Has Huge Upside in 2016,” Profit Confidential, February 26, 2016.)
Lots of Ammo for Best Buy Stock Bulls
All of the upside that analysts were—finally and a little late—raving about on Best Buy stock didn’t even take into account an interesting prospect for the fall. Best Buy has a front-row seat to an Apple Inc. (NASDAQ:AAPL) product blitz reaching its stores starting in September. Apart from the “back-to-school”’ computer sales, Apple will introduce its new “iPhone 7.” Then there are rumors of Apple launching two—not one—new “Apple Watch” products. (Source: “Apple Watch 2 release date, news and rumors,” TechRadar, last accessed August 23, 2016.)
Best Buy’s improved guidance has likely taken sales of the new iPhone into account. But it might be as surprised by Apple’s other rumored product launches as Apple’s millions of devoted fans will be. Best Buy stock will be traveling the bull express this fall and into the Christmas season; even $50.00 for BBY stock is starting to look a little low.