Best Buy Co Inc (BBY, Financial) has recently experienced a daily loss of -4.46%, with a 3-month gain of 13.18%. The company's Earnings Per Share (EPS) (EPS) stands at 5.91. But does this indicate that the stock is modestly undervalued? This analysis aims to answer that question and provide a comprehensive valuation of Best Buy Co Inc.
Company Overview
Best Buy Co Inc, the largest pure-play consumer electronics retailer in the U.S., reported consolidated fiscal 2023 sales of $46.3 billion. The company holds approximately 8.5% of the U.S. market share and more than 35% of offline sales. Despite the majority of sales happening in-store, recent investments in e-commerce fulfillment have led to a significant increase in U.S. e-commerce sales.
Understanding GF Value
The GF Value is a proprietary measure that provides an estimation of a stock's fair value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is considered overvalued. Conversely, if it is significantly below the GF Value Line, it is deemed undervalued.
Best Buy Co's current stock price is $75.36 per share, with a market cap of $16.40 billion. According to GuruFocus Value calculation, Best Buy Co's stock is believed to be modestly undervalued. Consequently, the long-term return of its stock is likely to be higher than its business growth.
Assessing Financial Strength
Examining a company's financial strength is crucial before investing, as companies with poor financial strength pose a higher risk of permanent loss. One way to assess financial strength is by looking at the cash-to-debt ratio and interest coverage. Best Buy Co's cash-to-debt ratio of 0.26 is lower than 63.55% of 1092 companies in the Retail - Cyclical industry. However, its overall financial strength is rated 7 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies typically carries less risk. Best Buy Co has been profitable for 10 years over the past decade. With revenues of $45.10 billion and an Earnings Per Share (EPS) of $5.91 in the past 12 months, the company's operating margin of 3.95% is better than 52.7% of companies in the Retail - Cyclical industry.
Growth is a critical factor in a company's valuation. Best Buy Co's 3-year average annual revenue growth rate is 8%, ranking better than 63.57% of companies in the Retail - Cyclical industry. However, its 3-year average EBITDA growth rate is 4.3%, ranking worse than 58.65% of companies in the same industry.
Return on Invested Capital vs Weighted Average Cost of Capital
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to assess profitability. If the ROIC is higher than the WACC, it indicates the company is creating value for shareholders. Best Buy Co's ROIC was 15.14, while its WACC was 9.03 over the past 12 months.
Conclusion
In conclusion, Best Buy Co Inc (BBY, Financial) is believed to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 58.65% of companies in the Retail - Cyclical industry. For more information about Best Buy Co stock, check out its 30-Year Financials here.
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