Is Best Buy Co., Inc. (BBY) Finally a Better Buy?

BBY Revenue TTM data by YCharts

Unfortunately, Best Buy’s profits aren’t synchronized to its revenue growth. The company’s diluted EPS plunged 230.7% over the past five years, woefully underperforming its rivals.

BBY EPS Diluted TTM data by YCharts

Lastly, all three brick-and-mortar electronics retailers suffer from a similar problem – declining free cash flow and cash reserves.

BBY Free Cash Flow TTM data by YCharts

However, Best Buy finished the fourth quarter with adjusted free cash flow of $965 million, in line with its own guidance of $850 million to $1.05 billion – which means investors shouldn’t be worried about the company’s cash flow drying up anytime soon.

Takeover aborted, for now

Best Buy’s founder Richard Schulze made headlines last year after he announced that he was interested in buying the company and taking it private. Schulze, who owns approximately 20% of the company, was originally a chairman of the board.

Schulze spent most of last summer attempting to secure financing and support from private equity firms to take Best Buy private. He previously submitted a proposed buyout that valued Best Buy at $8 billion, a significant premium to its current $5.63 billion market cap – which excited investors considerably and sent shares on a wild, news-fueled roller coaster ride.

Although Best Buy delayed its fourth quarter earnings release to give Schulze more time to work out a bid, a deal appears to be off the table for now. However, many investors believe Schulze could return to the table soon, especially after the market’s warm response to its better-than-expected earnings. That wild card could cause shares to unexpectedly rally.

The Foolish Bottom Line

Best Buy’s results are not indicative of a full turnaround. Rather, these are the first flickers of life from a company beaten down by years of declines. For the first time in a long while, Best Buy’s same-store sales are positive, its earnings per share are inching back towards profitability, and the company has a clear plan for recovery by the end of fiscal 2014. That’s more than investors could have hoped for a year ago – and that makes it a better buy today than it was yesterday.

The article Is Best Buy Finally a Better Buy? originally appeared on Fool.com.

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