Why Is Best Buy Co., Inc. (BBY) Stock Rocketing Higher?

These new initiatives will help Best Buy differentiate itself from the competition and will be a better use of floor space than the CD and DVD racks that will be removed. In a best-case scenario, they will drive customers looking for good service to Best Buy stores, while reducing the company’s reliance on low-margin Apple products. On the other hand, Microsoft Corporation (NASDAQ:MSFT) and Samsung don’t have the brand cachet of Apple in the United States. If the legions of Apple fans in the U.S. come to see Best Buy as the “Samsung store” or the “Microsoft store,” it could offset much of the benefit of having these shops.

Foolish bottom line
Best Buy bulls believe that the company’s investments in competitive pricing and technology — and its partnerships with Samsung and Microsoft Corporation (NASDAQ:MSFT) — will get sales growing again. Furthermore, they expect the company’s cost cuts to boost margins. In fact, some analysts believe that Best Buy could achieve EPS of $5 several years down the road, which would support a much higher stock price.

That upside scenario, while not impossible, seems far-fetched. Best Buy Co., Inc. (NYSE:BBY) hasn’t yet halted its streak of earnings declines, and fierce competition will continue to pressure margins going forward. As a result, Best Buy stock looks primed for a big correction. I wouldn’t consider investing in this company until it has demonstrated tangible signs of a turnaround, in the form of a return to earnings growth.

The article Why Is Best Buy Stock Rocketing Higher? originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Fool contributor Adam Levine-Weinberg owns shares of Apple, is long January 2015 $390 calls on Apple, and is short shares of Amazon.com. The Motley Fool recommends Amazon.com, Apple, and Costco Wholesale and owns shares of Amazon.com, Apple, Costco Wholesale, and Microsoft.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.