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Best Buy (ISIN: US0865161014) is a leading brick-and-mortar retailer of consumer electronics in the USA. The company, based in Richfield (Minnesota, USA), was on the up for a long time until the rise of online retail put an abrupt end to this.
Despite the challenges posed by e-commerce and a weak US economy, the company has shown impressive resilience. The growth impetus comes primarily from its own online retail. Here, Best Buy is increasingly acting as a competitor to Amazon. There is also a membership program that binds customers to the company. Sales are even expected to rise again in the medium term.
There is also positive news to report on the share price. Despite the difficult operating situation, the share price has risen by 170 percent in the last ten years. This is mainly due to the traditionally high share buy-backs. The dividend has also risen. It won't be long before the company belongs to the select circle of dividend aristocrats.
But even without the aristocratic title, the company is one of the best dividend stocks on the market. At least that is the conclusion reached by the dividend analysis of Best Buy shares. But can the share also be an exciting investment, especially in view of the major challenges? The following share analysis of Best Buy shares should provide some possible answers.
The most important facts in brief
Best Buy is a retailer of consumer electronics, computers, cell phones, appliances and services. The business model comprises various store formats, each of which is geared towards different customer segments and product categories. The 901 Best Buy stores in the USA are dominant. There are also 22 outlet centers and stores under the Pacific Sales and Yardbird brands.
Best Buy Stores: They are Best Buy's main stores and offer a wide range of products, including consumer electronics, computers, cell phones, home appliances and services. Best Buy stores typically offer a comprehensive selection and can be found in shopping centers or as stand-alone stores in urban areas. The sales mix shows a wide range of products, with computing and cell phones accounting for the largest share, followed by consumer electronics, home appliances, entertainment and services.
Outlet Centers: This store format typically offers products at discounted prices that are from previous inventory or slightly damaged. Outlet centers can offer a variety of products from different categories, including consumer electronics, computers, appliances and more.
Pacific Sales: These stores specialize in selling home appliances and offer a wide selection of brands and products for the kitchen and laundry room.
Yardbird: This Best Buy store format specializes in outdoor products, including outdoor furniture, grills and outdoor entertainment electronics. The format was acquired by Best Buy in 2021 and the opening of new Yardbird stores demonstrates Best Buy's strategic expansion in these niche markets.
As most stores are located in the USA, the company also generates its main sales in the No. 1 consumer country, the USA. However, there are also some stores in neighboring Canada. In the 2024 financial year, the number of Best Buy stores here amounted to 128, plus 32 Best Buy Mobile stores. In contrast to the USA, where the number of stores has fallen slightly, the total number of stores in Canada has not changed compared to previous years.
Best Buy is facing the challenges of growing online retailing as customers increasingly shop online and traditional retailers come under pressure. The generally lower operating costs of online retailers often enable lower prices, which has led to a fierce price war and put pressure on Best Buy's margins. In addition, customers' shopping habits are changing, preferring the convenience of online shopping and visiting fewer stores. Another problem is “showrooming”, where customers look at products in Best Buy stores but then buy them elsewhere online.
Best Buy has taken various initiatives to address these challenges. These include a stronger presence in online retail by offering customers the opportunity to buy products online and pick them up in the stores or order them in the stores and have them delivered. The company is also investing more in customer service and advice in order to set itself apart from pure online retailers. The store network is also being optimized to increase profitability and adapt to changing shopping habits. Best Buy is also expanding its product range and diversifying its service portfolio in order to remain competitive against its online rivals.
The initiatives appear to be having an effect. A continuous increase in online sales has been recorded in recent years. In times of the coronavirus pandemic, there was even a special boom with dynamic growth. Since then, however, the business has consolidated to a value of just over USD 13 billion. Compared to the figure for the 2018 financial year of just under USD 6 billion, however, this is still a considerable sum. Compared to the record figure of 18.7 billion US dollars from 2021, however, a lot of turnover has been lost. If you compare Best Buy's most recent online sales with the total sales of 43.5 billion US dollars in 2024, their share is just under 30 percent. This in turn shows that there is still a lot to be done to emerge as a winner from the digitalization of retail.
Overall, the company is currently losing sales. In the 2024 financial year, which ended on January 31, 2024, a decline in sales of 6 percent was recorded. The decline in net profit is even in the double-digit range at 13 percent.
One of the main reasons for this development is, of course, the megatrend of online retail, from which the company is suffering. This development was interrupted by the coronavirus pandemic, which led to strong sales growth in 2021 and 2022. However, the return to normality means tough cuts again for Best Buy. The like-for-like sales illustrate this once again. They declined by 6.8 percent in 2024 as a whole after 9.9 percent in the previous year.
We have already seen what the figures for the full year 2024 look like. However, a look at the fourth quarter of 2024 now shows that the decline in sales is only one percent. This is the strongest quarter of the year in terms of sales, as it includes the important Christmas business.
Even though a slight increase in earnings of 7 percent to 730 million euros was achieved at operating level, the bottom line is a decline in net profit to 460 million US dollars. Like-for-like sales remain negative at -4.8%. However, compared to 2024 as a whole (-6.8%) and the previous year (-9.3%), the key figure looks significantly better. Although it is not yet possible to speak of a turnaround, the business momentum is showing a slightly positive trend. It is important to keep an eye on this in the coming quarters.
For the first quarter of the full year 2025, Best Buy expects a comparable sales decline of around 5 percent and an adjusted operating margin of around 3.4 percent, which corresponds to the level of the first quarter of the previous financial year. These forecasts tend to show that Best Buy remains cautiously optimistic and continues to take measures to increase profitability. The general conditions tend to remain difficult. High interest rates and persistent inflation in the US continue to put pressure on consumption levels.
For the full year 2025, Best Buy expects sales of between USD 41.3 billion and USD 42.6 billion. Comparable sales are expected to be between minus 3.0 percent and 0.0 percent. This should ensure a further decline in sales. Best Buy expects the adjusted operating margin to be between 3.9 percent and 4.1 percent. This figure is also likely to be slightly below the previous year's figure of 4.1%.
Diluted adjusted earnings per share according to company planning are expected to be between 5.75 and 6.20 US dollars. Compared to the previous year (USD 6.37), this corresponds to a slight increase, which may also be due to the consistent share buy-backs. The company is also planning capital expenditure of USD 750 to 800 million.
The analysts' view of the company is interesting. They see the 2025 financial year as the year of the turnaround. Investors can expect a trend towards rising sales again from 2025. For example, turnover of 44.4 billion euros is expected for the 2029 financial year, compared to an expected turnover of 42 billion euros in the current 2025 financial year.
Earnings could increase disproportionately. Analysts even expect double-digit growth rates from 2026 onwards. The expected P/E ratio could thus fall back into the single-digit range if the share price remains at the current level.
Best Buy scores an impressive 15 points in the dividend analysis, the highest possible score. But is the Best Buy share also a perfect dividend share?
Perhaps only to a limited extent. After all, the company is in debt and has a growth problem from today's perspective. Above all, the disruptive threat posed by online retail is causing skepticism. The management has not yet shown that it can grow dynamically in online retail.
The situation may be different when it comes to the dividend trend, which has only known one direction for years: upwards. The electronics retail chain has been increasing its dividend for two uninterrupted decades now. This strength is no coincidence and is mainly due to the high share buybacks.
In the last six years alone, almost a quarter of the outstanding shares have been bought back. The result is a trend towards rising EPS and dividends. The extensive buybacks are made possible by the strong cash flow from the core business. Even if it is trending downwards, 675 million US dollars in free cash flow was still generated in the last twelve months.
With an expected P/E ratio of 12, the valuation of Best Buy shares can be considered fair. However, in view of the chronic weakness in sales, the share could already be expensive. The cash flow multiple of 26.7 is a further indication that the share is not cheap.
However, as the company is undergoing a transformation process, the future is subject to increased uncertainty. The decisive factor is likely to be how the company positions itself against the competition in online retail. Analysts believe that a return to growth is at least possible. However, this is likely to initially be in the low single-digit range in the medium term. On the earnings side, however, a return to growth could result in double-digit EPS growth quite soon - due to the strong share buybacks. In such a scenario, Best Buy shares could of course appear attractive.
Best Buy shares could be an interesting investment opportunity. Despite the challenges posed by online retail and the weak US economy, the company has shown remarkable resilience. The forecasts for the 2025 financial year look promising with expected sales of USD 41.3 to 42.6 billion and stable to slightly rising earnings per share. The current year could herald a turnaround towards sustainable growth. The planned investments underline the future growth potential. Not to be forgotten are the traditional share buy-backs, which could lead to a disproportionate increase in EPS.
However, this is still a long way off. In addition, the company's history shows that it still has some catching up to do compared to its online competitors. Analysts are cautiously optimistic, which confirms the average price target of 18.5%. As many as 60 percent of analysts see the share as a hold.
For those who are still undecided, it might be worth sounding the alarm. A marker at a P/E ratio of 10 could mean an additional margin of safety.