Best Buy Co Inc (BBY, Financial) has seen a daily loss of 2.28% and a 3-month loss of 10.51%. Despite these figures and an Earnings Per Share (EPS) of 5.81, the question remains: is the stock modestly undervalued? This comprehensive analysis aims to answer that question, providing valuable insights into the company's financial health and intrinsic valuation.
Company Overview
Best Buy Co Inc (BBY, Financial), the largest pure-play consumer electronics retailer in the U.S., recorded $46.3 billion in consolidated fiscal 2023 sales. The company holds roughly 8.5% share of the U.S. market and more than 35% share of offline sales. Despite a significant portion of sales being generated in-store, recent investments in e-commerce fulfillment have seen the U.S. e-commerce channel roughly double from pre-pandemic levels. As of September 18, 2023, the company's stock price stands at $70.74, with a market cap of $15.40 billion.
Understanding the GF Value
The GF Value is a unique measure that estimates the intrinsic value of a stock. The GF Value Line provides an overview of the fair value at which the stock should be traded. This value is calculated based on historical multiples, an adjustment factor from GuruFocus based on the company's past returns and growth, and future business performance estimates.
According to the GF Value, Best Buy Co's stock appears to be modestly undervalued. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Given Best Buy Co's current price of $70.74 per share and a market cap of $15.40 billion, the stock seems modestly undervalued, suggesting that the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it is crucial to review a company's financial strength before deciding to buy its stock. Best Buy Co's cash-to-debt ratio of 0.27 is worse than 61.45% of the 1100 companies in the Retail - Cyclical industry. Despite this, GuruFocus ranks Best Buy Co's overall financial strength at 7 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies carries less risk, especially those with consistent profitability over the long term. Best Buy Co has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $44.40 billion and Earnings Per Share (EPS) of $5.81. Its operating margin of 3.87% is better than 53.21% of 1105 companies in the Retail - Cyclical industry. Overall, GuruFocus ranks Best Buy Co's profitability as strong.
Growth is a crucial factor in a company's valuation. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Best Buy Co is 8%, which ranks better than 64.15% of 1046 companies in the Retail - Cyclical industry. However, the 3-year average EBITDA growth rate is 4.3%, which ranks worse than 58.59% of 896 companies in the same industry.
ROIC vs. WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate a company's profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Best Buy Co's ROIC was 14.19, while its WACC came in at 8.77.
Conclusion
In conclusion, the stock of Best Buy Co (BBY, Financial) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 58.59% of 896 companies in the Retail - Cyclical industry. To learn more about Best Buy Co stock, you can check out its 30-Year Financials here.
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