The Flawed Logic of Best Buy Co., Inc. (BBY) Bears

There are always going to be people who like to buy things in stores, who like to see and test out electronics before they buy it, who like to have knowledgeable staff guide them through their purchase. Although Best Buy employees have been criticized in the past, the company is now focused on training their employees to offer the best customer service possible. And with the “showrooming” effect minimized due to the price-matching policy, Best Buy has taken away much of Amazon’s advantages.

Ironically, while the author calls Best Buy’s margins and ROE abysmal there is no talk of Amazon’s numbers. Based on free cash flow Amazon’s ROE is 4.8%, and its free cash flow margin is 0.65%. This is truly abysmal.

4) The stock has gone up a lot, and summer is around the corner

Citing the whole “sell in May and go away” philosophy the author claims that Best Buy is likely to fall hard because it has risen much more than the market. First, past stock performance has nothing to do with future stock performance. Second, before this rise the stock had declined by about 50% over about a year, and by even more over a few years time.

The article also points to a chart of the stock price over 3 days which shows a downtrend, drawing the conclusion that this somehow proves that the massive decline has already begun. If you  try to draw any conclusion from a chart then you probably shouldn’t be managing your own money.

The bottom line

I have no idea what the stock price is going to do in the short term, but Best Buy is certainly worth more than the $12 per share which the author of the original article suggests.

The article The Flawed Logic of Best Buy Bears originally appeared on Fool.com and is written by Timothy Green.

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