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Best Buy (BBY.N) - Fundamental Investment Case


Publication Date: 21 May 2019 - By Robert Prather By Robert Prather

Equity Fundamental Equity USA Consumer

Best Buy Co., Inc. retails consumer electronics, home office products, entertainment software, appliances, and related services through its retail stores, as well as its web site. The Company also retails pre-recorded home entertainment products through retail stores.


Best Buy is one of the largest consumer electronics outlets in the US and beyond. The multinational retailer sells both products and services through roughly 1,200 retail, mobile stand-alone, and smaller express stores under the Best Buy, Best Buy Express, Best Buy Mobile, Five Star, Future Shop, Geek Squad, Magnolia Audio Video, and Pacific Kitchen and Home Sales banners. Its stores sell a variety of electronic gadgets and wearables, tablets, movies, music, computers, mobile phones, and appliances. On the services side, it offers installation and maintenance, technical support, and subscriptions for mobile phone and Internet services.


Vision does not believe the thesis hinges on the 5/23/19 earnings release but expects the thesis to play out over the coming 12 to 18 months.  

Please download the full report for details on the Bear Case outlined below.

Qualitative Concerns:

  • Apple hardware products estimated at between 15% and 20% of revenue are seeing weak growth.
  • Apple products are seeing far greater distribution outside of Best Buy with Amazon and Costco now carrying most products. 
  • Amazon and Costco continue to push for more ecommerce sales (with electronics and appliances being large drivers in Costco's case) at faster and faster shipping speeds.
  • Wal-Mart continues to match faster shipping as well as pick up in store, which competes directly with Best Buy.
  • Cyclical gaming and TV revenue will face difficult comparisons against Fortnite, Nintendo console launch and 4K TV penetration. 
  • 2018 tax refunds will be down year-over-year.
  • Tariff uncertainty could damage appliance and TV sales.
  • Sears lost appliance sales to become less of a benefit going forward on a dollar basis.

Fundamental Concerns:

  • Weak revenue growth and declining store base.
  • SSS boosted by one time benefits and closure of mobile locations close to large box locations.
  • Gross margins deteriorating despite peak operating margins.
  • Rising DIOs and ecommerce growth point to continued gross margin weakness.
  • Peak ROIC and ROE driven by unsustainable cost cutting and store closures.

Bottom Line: Brick and mortar retailer facing difficult comparisons and increased competition in their most important product category



Best Buy

Source: VR Fundamental

Pages: 59

Released: 21 May 2019

Unlock for 35 credits

The Author

Robert Prather

Equity Analyst

Industrials, Telecom & Media, Consumer, Technology



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