Is Best Buy Stock a Buy?

Investors are expecting great things from Best Buy (NYSE:BBY) these days. Shares of the consumer electronics retailer are have been setting new record highs just ahead of its fiscal 2021 second-quarter report, which is due out before the opening bell on Aug. 25. Shareholders have enjoyed a 67% return over the last 52 weeks and 26% year to date. Will Best Buy live up to the market’s rosy expectations and continue to climb?

Photo of a single shopper in a large consumer electronics store.

Image source: Getty Images.

Tackling the coronavirus crisis with the help of online orders

By all accounts, Best Buy is managing the COVID-19 health crisis better than most retailers. It shifted to an all-curbside delivery model in March, and sales in the remaining six weeks of its fiscal first quarter came in at 81% of the year-ago period’s result. Online sales rose 155% in the quarter that ended May 4, including a 300% surge during the curbside-only period. And if you thought that the sudden surge in digital orders might wreak havoc on Best Buy’s back-end shipping and inventory systems, you thought wrong. Its store network quickly took an active part in the company’s e-commerce efforts.

“Even with the sustained online growth levels of approximately 350% during the last three weeks of the quarter, we did not have material disruptions and maintained our levels of fast service,” CEO Corie Barry said during Best Buy’s first-quarter earnings call. “In April, 65% of what we sold online, which is the vast majority of what we sold, was either picked up curbside or shipped from a store.”

Recent trends

The fiscal Q1 surge in online orders was tightly related to the transition to work-from-home operations that so many companies were forced by necessity to adopt. Best Buy was a quick and easy source from which people could acquire remote-work essentials such as web cameras, better laptops, and headphones with built-in microphones. That first heavy wave of buying has subsided by now, but many companies are still leaning on the remote-work model. People who swung by their local Best Buy store for a quick fix in March or April may have needed to come back for more permanent tech solutions over the summer, which would tilt the company’s sales mix toward higher-quality products with heftier price tags.

The company has reopened most of its stores to normal foot traffic, but the option of buying merchandise online and picking it up at a local store remains popular. In a business update delivered near the end of July, Best Buy said that sales were trending slightly above the comparable quarter in 2019 and that online revenues had nearly tripled year over year. Its share price rose more than 7% that day.

A white charting arrow trending upwards.

Image source: Getty Images.

Has Best Buy earned its lofty stock price?

Best Buy stock is not riding a wave of hot air but of actual business results with solid revenue data. The earnings report will update the preliminary sales figures it already provided, but investors have a fairly clear idea about the bigger picture, and it’s mostly good news.

Other big-box retailers with significant online sales support have posted strong results for the same period. Discount chain Target (NYSE:TGT) absolutely smashed the Street’s expectations on Wednesday, more than doubling analysts’ earnings estimates and beating their revenue targets by approximately $3 billion. Home improvement specialist Lowes (NYSE:LOW) pulled off a similar surprise, led by a $3 billion revenue beat. Target shares surged as much as 13% on the news, while Lowes added 3%. Both of these household-name retail stocks are trading at all-time highs right now.

If its fellow retail giants can do it, so can Best Buy. I will admit that the stock price looks a bit overheated, and I would prefer to buy into this well-managed business on the dips, but it’s never a bad time to invest in a high-quality company. In the words of master investor Warren Buffet, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

That’s an accurate description of Best Buy right now — a wonderful company at a fair price.

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