Best Buy stock is priced cheap enough to buy.
Best Buy (BBY 16.21%) stock is finally taking off! After lagging the stock market for much of the past year, Best Buy shares soared 16.5% through 10:15 a.m. ET after reporting a big earnings beat Thursday morning.
Analysts forecast Best Buy would earn only $1.16 per share on sales of just over $9.2 billion. Instead, Best Buy reported a profit of $1.34 per share and sales approaching $9.3 billion.
Best Buy Q2 earnings
That’s the good news. Now, here’s the bad: Best Buy may have exceeded expectations, but its same-store sales still declined 2.3%, and total sales were off 3.1% year over year. Commenting on sales trends, CEO Corie Barry described consumers as “seeking value and sales events” – which doesn’t sound great for profit margins.
What’s surprising, though, is that despite customer inclinations, Best Buy actually did improve its margins last quarter, adding 30 basis points to gross profit margins (23.5%) and 50 basis points to operating profit margins (4.1%).
Result: Sales declined slightly, but Best Buy still grew its earnings a respectable 7%.
Is Best Buy stock a best buy?
Can Best Buy keep it up?
Switching to guidance, management forecasts a “stabilizing” retail environment — which isn’t as good news as it sounds. Previously, Best Buy thought sales might decline 3% this year but also might not decline at all. Two-thirds through the year, though, management is now resigned to the fact that sales will slip this year — somewhere between 1.5% and 3%.
This resulted in a lower projection of full-year sales — now about $41.6 billion.
On the other hand, Best Buy raised guidance for “non-GAAP diluted EPS” (which was equal to actual GAAP earnings in Q2). The company’s forecast of $6.10 to $6.35 in profits (so about $6.22 at the midpoint) implies Best Buy stock is selling for about 16.3 times earnings.
Based on analyst forecasts of a 10.7% long-term earnings growth rate and factoring in Best Buy’s generous 4.3% dividend yield (so a total return of 15%), that’s probably enough to make Best Buy stock a “buy.”
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Best Buy. The Motley Fool has a disclosure policy.
