3 Reasons Best Buy Co Inc Stock Is a Buy on the Dip

Recently consumer electronics seller Best Buy Co Inc. (NYSE:BBY) released its third quarter results. The figures had a tepid reception on Wall Street and soon after the earnings call, investors began to abandon BBY stock. The share price has recovered somewhat from the initial shock, but BBY stock is still down 2% from last week and 7.26% since August.

We are likely to see BBY stock sink even further as the holiday shopping season kicks into full gear, but investors who are looking to pick up retail stocks might want to keep an eye on BBY and buy if there’s another pullback.

Best Buy might not be turning in the same impressive figures that peers like Wal-Mart Stores Inc. (NYSE:WMT) have, but the firm has seen its turnaround plans take shape over the past year. Also, BBY has a lot of potential growth catalysts in the year ahead- so its a good long-term play in the retail space.

Not as Bad as it Looks

Investors abandoned BBY stock following the firm’s third-quarter results for a few reasons. The company’s quarterly revenue of $9.32 billion came in below expectations of $9.36 billion, but more importantly BBY’s guidance for the fiscal fourth quarter was disappointing.

Management says its expecting to see EPS fall somewhere between $1.89 and $1.99, that’s significantly lower than analyst’s expectations of $2.03 per share.

However, when you look at the bright side, BBY doesn’t appear quite so deflated. For one thing, Best Buy battled several headwinds in the third quarter and still managed to grow its revenue from a year earlier.

The company had to temporarily close several stores during the third quarter due to hurricanes and the fact that the iPhone X launched later than expected is said to have taken away $100 million from the firm’s third quarter sales figure.

Even with all of those obstacles, BBY still managed to grow its revenue 4.1% from last year’s third quarter. More importantly, Best Buy also saw comparable sales rise 4.4% from the year-ago quarter.

Considering just how tough the retail space is right now even without weather to deal with, that’s not a bad performance. Not only that, but Best Buy’s results have consistently beaten expectations every quarter this year until now.

It’s very possible that barring any unforeseen weather events, BBY may outperform in Q4.

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Turnaround Plans for BBY Stock

Best Buy has been very successful in executing a turnaround plan, and this year we’ve seen management’s efforts start to pay off. The firm has been focused on growth in its services arm and smart-home products.

As the internet of things continues to develop and people become more and more interested in adding smart-home appliances to their house, Best Buy has positioned itself to be a major beneficiary.

Not only does the company sell a wide variety of products that support the IoT, but Best Buy has also been investing in creating a connected home experience for shoppers.

Connected Home products and services have been a major comp driver over the past year and Best Buy looks likely to continue building that segment out. The firm recently added Best Buy Smart Home by Vivint, a security and monitoring offering, to its list of services.

These additions are what will keep Best Buy from being out-shined by firms like Amazon.com Inc. (NASDAQ:AMZN) that are quickly becoming huge names in the smart-home space.

Instead, Best Buy is working to support Amazon’s advances into connected home technology by helping customers enhance their wifi signals and create a secure connection between devices.

The Sears Effect

While looking at the slow and painful demise of Sears Holdings Inc. (NASDAQ:SHLD) might initially make you question whether or not it’s wise to add a retailer on the rebound to your portfolio, SHLD’s eventual bankruptcy will actually be a major windfall for Best Buy stock.

While Sears is certainly struggling to stay afloat, the company is still a major player in appliance sales throughout the U.S.

As of last year, SHLD was number 3 in the country for appliance sales so as the firm continues to deteriorate, a huge slice of marketshare will become available. BBY is planning to fill that gap with its own appliance arm, which the company has been steadily building.

The Bottom Line

Best Buy stock is still a risky bet. Like the rest of the companies in the retail industry, BBY is weighed down by uncertainty. Things are changing quickly in the retail space which has left many of the sector’s biggest players out in the cold.

However, Best Buy appears to be executing a successful plan for the future that will keep the retailer relevant for years to come.

As of this writing, Laura Hoy was long AMZN.

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