The retail industry is plagued with a lot of uncertainty as result of the weak economy, high unemployment rate and a weak consumer. Buying the stock of any company in the retail space comes with some element of risk. The key to profiting in the retail space is to first understand the business cycles, and what differentiates one company from the others. Prudent investors should be looking beyond the current downturn and seeking out bargains amongst the myriad of beaten down stock, Best Buy (BBY) clearly falls into the beaten down category. BBY is one of the most dynamic and successful companies in the consumer electronics, home office products and entertainment software sector. Best Buy market is predominantly in the United States, China and Canada.
Best Buy’s major competitors are Radio Shack and Wal-Mart. Wal-Mart is Best Buys most formidable competitor. However, Best Buy’s superior service and unique consumer store experience should bode well for BBY. Best Buy also has a user friendly online website that allows its customers to either shop online or review items and then visits one of their local stores to purchase the item.
Best Buy developed the concept of the Geek Squad in 1994; the Geek Squad provides computer related technical support to Best Buy’s customers. The Geek Squad provides in-store, on-site and Internet remote access. Geek Squad service is also available 24-hours a day via telephone and emergency on-site visits.
Best Buy recently signed an agreement in which Best Buys Geek Squad will support Ford Motors radios. Best Buy will assist customers in connecting all of their gizmos, such as their phones and ipods to the newest sync radio models.
Best Buy is adjusting to the ever-changing marketplace by opening up smaller stores that will cater exclusively to the wireless device market. Best Buy will also be selling Brammo’s $12,000 Enertia electric motorcycles, initially on the west coast and plans on expanding its sales across the U.S., China and Europe. Most of Best Buy’s stores are already equipped with garage bays that are currently underutilized; hence this presents a potential opportunity for BBY to branch out from its core business.
Best Buy has benefitted from the failure of one of its biggest rivals Circuit City (CC). However, a weak economy and a relatively weak consumer demand continue to plague all major retailers including Best Buy. Best Buy is expected to gain some of the $10 billion in sales that Circuit City once had. If Best Buy can gain 25% of this market share, the gain will significantly help Best Buys in its same store sales.
Companies that pay a consistent dividend should be attractive to investors and Best Buy has consistently paid a dividend and currently has a dividend yield of 1.4%. Best Buys forward price to earnings growth rate (PEG) is 1.1. The PEG rate signifies that BBY is selling at a discount price based on its earnings when compared to the industry average PEG of 1.46.
Best Buy continues to maintain its leadership in the consumer electronics space, by providing one of the best shopping experiences of all of the electronic retail outlets. Investors with a long term investment time frame should find BBY attractive at the current level and should benefit from dollar cost averaging into Best Buy’s stock. BBY stock should significantly recover towards the end of 2009 and into 2010 as the consumer comes back and the economy continues to improve.