Yesterday morning, Best Buy Co. Inc. (BBY) posted a shocking $1.7 billion loss in the fourth quarter. By comparison, this time last year, the big box store brought in $651 million in profits. After adjusting for one-time charges, the company posted earnings of $2.47 per share, which missed the $3.70 consensus estimate by 33%.
As to be expected, investors were spooked by this earnings announcement and sent shares tumbling nearly 7% during trading hours.
This was an unpleasant surprise for holders of BBY, but it emphasizes why my Portfolio Grader system is such an important resource.
For months now, my stock rating system has pegged BBY at either a hold or sell due to its shaky fundamentals and lackluster level of buying pressure. Interestingly enough, the company has some fundamental strength, including solid cash flows and return on equity. However, Best Buy needs a lot of help in improving sales growth, operating margin growth and earnings growth.
After Best Buy’s dip, investors are asking themselves whether now would be a good time to initiate a position in the big box store. I think that would be a big mistake.
In response to the poor quarterly operating results, management announced that Best Buy Co. will close 50 big box stores nationwide next week in an effort to cut $800 million in costs by fiscal 2015. The company is in the middle of shifting from a product-centric business model to a customer-centric model, so the Best Buy of today will likely be vastly different from what we see five or ten years from now.
Because of this, I recommend that you stay away from this stock. Best Buy is in the middle of a dramatic transition, and we need to let the dust settle before even thinking about getting into this play. If you’re really interested in specialty retailers like Best Buy, I suggest that you use my Portfolio Grader tool to find the top stocks in the sector.
Until next time!