Mgmt 493 - Bestbuy Analysis

Best Buy Strategic Analysis

Best Buy Co. Inc. (NYSE: BBY), founded in 1966 and headquartered in Richfield, Minnesota, is a provider of technology products, services, and solutions. First listed in 1987 on the New York Stock Exchange, Best Buy is categorized as a mid-cap value firm in the Specialty Retail sector. Best Buy services both small and large business owners, consumers, and educators, whether it be in store, with their Geek Squad agents or online or mobile application. It not only has operations domestically in the United States but also operates internationally in Canada and Mexico. The company owns and operates many subsidiaries domestically as well as internationally. Within the domestic side of Best Buy’s operations being in the United States and all territories, they operate Best Buy, bestbuy.com, Best Buy Express, Best Buy Mobile, Geek Squad, Magnolia Audio Video and Pacific Sales. The International segment consists of all company operations outside of the United States and respected territories. This segment consists of everything in the United States as well as, Magnolia Home Theater, Magnolia Design Center, and Pacific Kitchen and Home store-within-a-store. Carrying out over 1.5 billion transactions a year, Best Buy operates over 1,600 stores worldwide and employs over 125,000 people. An advantage Best Buy has is that where the company has operations, 70% of the population lives within 10 minutes of a store front. Best Buy also has an expansive recycling program. Every minute a store is open, Best Buy collects up to 409 pounds of electronics which will ultimately be recycled.

Best Buy is the leading specialty retailer in the United States when it comes to not only the Specialty Retail sector of the NYSE but also the consumer electronic specialty industry as a whole. The Specialty Retail Sector of the NYSE contains companies that are engaged in operating through storefronts or dealerships. Best Buy ranks above Walmart, Target, and Amazon when it comes to electronic retail sales. That being said, online retailers like Amazon have challenged Best Buy. You can have whatever electronic device you could imagine being shipped to your front door in 2-3 business days from the comfort of your own home, rather than having to go fight lines and be told they are out of stock in the device you need. Additionally Best Buy has been facing price wars from big-box stores and large-store discounters like Walmart and Target, which are eating into the company’s sales. Economic conditions play a large role in the specialty retail industry, the relationship between the two is very sensitive. Movement for stock prices in this industry often times reflect the companies and their operating performances, which can be heavily influenced by macroeconomic events, as well as specific market and or company events.

Best Buy is known as a “Mid-Cap Value Firm”, meaning their market cap is anywhere between $2-$10 billion. That being said, currently, Best Buy’s market cap is $11.04 billion. That is calculated by taking the shares outstanding, 344.6 million, and multiplying it by the current closing price, which is $32.04. Best Buy is a company that goes above and beyond when it comes to the quarterly earnings report. They beat estimated earnings for 10 consecutive quarters, only to hit the estimate during Q3 of this year. Best Buy’s debt-to-equity ratio, as of Q3 2015, is 35.8%, which is an improvement from the 41.5% in the previous fiscal year. Debt-to-equity reflects the portion of equity to the portion of the debt that is used to finance all of the company’s assets. Having a low debt-to-equity ratio indicates a lower risk financially. Compared to the rest of their industry, Best Buy has a lower net profit margin. The industry is 6.74% and Best Buy is 2.09%. Net profit margin tells you how much profit a company makes for every dollar of revenue received. This is calculated by net profit after taxes and dividing it by net sales. A low-profit margin tells investors that there is a low margin of safety, which concludes that there is a high risk in the security because a decline in sales will ultimately erase profits and could result in a net loss. Best Buy beats the industry and the S&P 500 when it comes to annual dividend yield, which tells the investor how much the company at hand pays in dividends each year as compared to its current price. Best Buy has a 2.87% annual dividend yield whereas the industry is only at 1.37%. The annual dividend yield is calculated by taking annual dividends per share ($0.92) and dividing it by price per share ($32.04). Return On Equity (ROE) for Best Buy is significantly lower than the industry. 18.41% and 35.93% respectively. ROE measures how much profit a company generates while using the money that was invested by the shareholders. This is how a lot of investors see how effectively their money will be used throughout