Looking for the best buy on the market? This stock could be
Last month, best buy (ABY -0.99%) cut its outlook for sales and earnings for the remainder of 2022, prompting the stock to sell. The stock just reported its second quarter earnings, and although the results were down, the stock rallied as the results weren’t as bad as investors expected. The stock is down 47% from its 52-week high, and after this reset, Best Buy looks like an attractive investment opportunity. Here’s why.
A hard reset
While same-store sales fell 8%, that was partly because Best Buy lagged a quarter as the pandemic still drove demand for electronics, computers and entertainment. at home and that consumers still had stimulus cash. For context, Best Buy’s same-store sales were still up 8% from the second quarter two years ago. Within individual product categories, sales of computers and home appliances were down from a year ago, but up 20% and 45%, respectively, from the same period in 2020. sales are still on an upward trajectory over a multi-year period, but they are not growing quite at the rate they had in the unprecedented environment of 2021. The company therefore seems in a better position than two years ago .
With Best Buy warning customers of this quarter’s results and lowering forecasts ahead of time, it looks like a “kitchen sink” quarter and possibly a reset point for the stock. as he prepares to turn the corner.
Carve out a niche
In a world where consumers are accustomed to acquiring products with a simple click on Amazon (AMZN -0.24%), retailers like Best Buy need to differentiate themselves and give customers a reason to shop there. The good news is that Best Buy is striving to become a differentiated option. Best Buy took advantage of its large physical footprint (more than 1,100 stores in the US and Canada) to offer one-day delivery to 99% of US zip codes.
Best Buy’s large sales staff gives it the ability to provide after-sales support for products that some customers may have difficulty setting up or navigating, which sets it apart from online sellers like Amazon. This support not only keeps Best Buy’s customers happy, but also makes it a valued partner for companies like Apple (AAPL -1.36%) and Samsung (SSNL.F 1.54%) since Best Buy helps its end users at the point of sale.
Additionally, Best Buy seems to be onto something with its Totaltech program. Members pay $199 per year and get access to Geek Squad 24/7 tech support, free two-day shipping, and special pricing and promotions. But perhaps most importantly, members get free shipping and installation on standard Best Buy purchases. Asking Best Buy to deliver and install a new refrigerator or dishwasher and take away the old one is very appealing to many potential customers. Best Buy can also, for example, mount a new flat screen TV. Best Buy CEO Corie Barry says she’s encouraged by the program’s growth, especially at a time when overall sales are down, and describes it as “a short-term investment to generate longer-term benefits.” and states that “Over time, we expect that the incremental expenses we collect from members will result in increased operating income.” Barry states that the company promoter’s net scores ( which measure the likelihood of a customer recommending a product or service to a friend or colleague) for installation and repair have increased from pre-pandemic levels, suggesting that these efforts are working These types of services make Best Buy stickier and help it compete with Amazon.
Dividend growth at a great price
Best Buy shares are cheap, trading at just eight times earnings. It is well below S&P500average of about 17 times earnings. Although Best Buy faces challenges related to inflation and diminishing consumer purchasing discretion, at these levels the challenges appear to be reflected in the stock price.
On top of that cheap valuation, Best Buy is also paying an attractive dividend. The shares are yielding 4.7%, which is well above the market average. The company has steadily increased its dividend payout over the past decade-plus, and the annual payout has more than doubled since 2017. Best Buy has increased its quarterly payout from $0.70 per quarter last year to 0, $88 per quarter in 2022. dividend payer with high yield and excellent history of dividend growth.
Is Best Buy a “best buy”?
In conclusion, much of the bad news seems to be in the rearview mirror and priced in, and Best Buy is a company that’s in better shape than it was before the pandemic. The shares are trading at an inexpensive valuation and the company has a compelling history of dividend growth. Best Buy is carving out a place for itself in an evolving consumer market and seems sufficiently differentiated from the competition, making it a good long-term investment opportunity at these levels.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Michael Byrne has no position in the stocks mentioned. The Motley Fool holds positions and recommends Amazon, Apple and Best Buy. The Motley Fool recommends the following options: long calls $120 in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.