RadioShack Corporation (RSH): Even Up 200%, Best Buy Co., Inc. (BBY) Shares Could Go Higher

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For months, I’ve been writing about the turnaround taking place at Best Buy Co., Inc. (NYSE:BBY). It has been a core holding in my portfolio this summer, and has performed extremely well.

Best Buy Co., Inc. (NYSE:BBY) shares moved even higher on Tuesday, rallying over 10% on an impressive earnings beat. Year to date, shares are now up nearly 200%.

Although shares have appreciated significantly, the retailer still has further upside.

Best Buy beats on earnings

The company beat analyst expectations on both the top and bottom line in the most recent quarter, making it the third consecutive beat. Same-store sales were down year over year, but Best Buy Co., Inc. (NYSE:BBY) attributed that to its ongoing remodeling.

Best Buy Co., Inc. (NYSE:BBY)

Hubert Joly, Best Buy’s new CEO, has been able to rapidly turn around the company by cutting costs, selling non-core assets, partnering with electronics firms, and blunting the impact of showrooming.

In the most recent quarter, the company managed to reduce annualized costs by $65 million, while selling off its stake in Best Buy Co., Inc. (NYSE:BBY) Europe for $526 million.

The case for further upside

Joly appears to have revamped Best Buy Co., Inc. (NYSE:BBY) from an operational standpoint, which is no doubt helpful, but I continue to like Best Buy shares going forward primarily because of two trends:

  1. The marketplace is about to be flooded with new electronics
  2. The store-within-a-store model lets Best Buy leverage its real estate

Best Buy, as with any retailer, is dependent on the products it sells. If there are no hot electronics to buy, Best Buy isn’t going to do well, regardless of how the company is being run.

But those new electronics are coming. Wearable gadgets, new video game consoles, 4K TVs and other new product categories are poised to hit the market in the near future, and that should drive sales to Best Buy.

Consider Samsung‘s upcoming Galaxy Gear smart watch. The device, which will likely be unveiled next month, represents something fundamentally new in the consumer electronics space.

Although smart watches already exist, most consumers are not familiar with them. Consequently, they’re probably going to want to see them in person before they buy.

Where will they go to check the Galaxy Gear out? Very likely Best Buy Co., Inc. (NYSE:BBY), with its mini Samsung “Experience Shops.”

That brings me to my second point: by partnering with electronics makers, Best Buy has been able to turn its large stores, commonly considered a liability, into an asset.

As Samsung aims to compete more closely with Apple, it needs a retail presence. Sure, it could build its own network of Samsung shops across the country, but that would take years. The smartphone wars are dynamic and fast moving. Samsung doesn’t have the time to build out a network of stores.

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