Big-box bust

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Who in Their Right Mind Owns Best Buy Stock?

Perhaps my favorite headline from Tuesday was that electronics retailer Best Buy (NYSE:BBY) sold its 50% interest in Europe’s Carphone Warehouse back to the company for about $775 million.

Just five years ago, it paid $2.15 billion to acquire that stake — for math-challenged investors, that means a loss of over $1.37 billion, or roughly 64%.

Why do I find this so amusing? Because you’d be hard-pressed to find a worse investment since 2008 than Best Buy stock. It’s down more than 50% from its late 2007 peak and over 40% from pre-recession levels.

But somehow, Best Buy managed to find a worse investment than itself.

Does that count as irony? I never can tell …

Anyway, there are a host of bad retail stocks out there — Barnes & Noble (NYSE:BKS), RadioShack (NYSE:RSH) and of course, train wreck JCPenney (NYSE:JCP), are all struggling to connect with consumers. It’s partially e-commerce from the likes of Amazon (NASDAQ:AMZN) and partially a branding thing, and nobody pretends that the task ahead is easy.

But you have to wonder who in the world would buy one of these stocks — particularly Best Buy.

Sure, there are signs of life at BBY. Most noticeably, the stock has more than doubled since January thanks to a return to profitability and the fact that co-founder Richard Schulze won’t be taking Best Buy private despite overtures at a buyout. Stifel upgraded BBY stock to “buy” with a $30 price target at the beginning of April, and this week Deutsche Bank upgraded the stock to “buy” with a $28 target.

Earnings have fought back despite continued pressure on the top line. The “good news” in its March earnings report was that Best Buy managed to tread water on revenue, posting sales of $16.71 billion to squeak out a gain above the $16.67 posted a year ago.

But if that’s “growth,” count me out.

New CEO Hubert Joly, who took over about a year ago, theoretically has a plan to save the company … but Best Buy’s crash-and-burn in late 2012 should show you what Wall Street thought of that plan. BBY lost almost 35% from the time Joly left his job at a travel agency (no joke) to join Best buy to the end of the year.

And we haven’t even gotten into the skepticism about Best Buy’s prospects amid the rise of Amazon, or the race to the bottom in margins on consumer electronics like flatscreen TVs.

I don’t begrudge the traders their gains. If you doubled your money betting on Best Buy at the bottom and gleefully watched the shorts get squeezed out, good for you.

But I simply cannot imagine a move much higher for Best Buy in 2013 … or long-term, for that matter. The secular trends of the retail industry are working against it, it now trades for a fair forward P/E of around 11 after the run-up — and by the way, consumer confidence ain’t looking all that grand as we enter summer.

In short, Best Buy is a sell.

Related Reading

  • Can Samsung mini-stores within Best Buy help boost sales? (Apple Insider)
  • A few weeks ago, Rocco Pendola predicted that current CEO Hubert Joly will soon lose his job at Best Buy. We’ll see — and we’ll see what that will do to BBY stock. (TheStreet)
  • John Maxfield and Rick Munarriz also say to avoid Best Buy. (The Motley Fool)

Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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