What does BBY do?

$BBY - Best Buy Co., Inc. retails technology products in the United States and Canada. The company operates in two segments, Domestic and International. Its stores provide computing products, such as desktops, notebooks, and peripherals; mobile phones comprising related mobile network carrier commissions; networking products; tablets covering e-readers; smartwatches; and consumer electronics consisting of digital imaging, health and fitness, home theater, and portable audio comprising headphones.

BBY Stock Analysis and Forecast

BBY Competition and Comparables

In order to undergo a comparable analysis (to determine BBY stocks value), we need to first outline who BBY's competitors are.

These competitors need to be publicly listed, have valid financial metrics/multiples, operate in a similar manner to BBY stock, and have a market cap similar to BBY (if possible).

By keeping this in mind, I found the following list of companies to be some of BBY stocks closest competitors:

TTM, CCL, MGA, CUK, YUMC, LB, MGM, VFC, RCL, LVS

BBY Stock News and Information

Recently, BBY reported their Q1 2022 financial report (found here). BBY is currently up 2% after releasing this report, which might lead you to think that they beat their earnings estimates, right?

You would be right! BBY beat their EPS estimate by 1% and their revenue estimates by 2%. However, it wasn't all good news as they decreased their outlook (expected larger sales declines than previously thought).

Analysis of BBY Financial Performance and Financial Ratios

BBY Yearly Financial Report:

BBY Revenues: In FY 2021, BBY experienced a yearly increase in revenues of $3.62B (or 8.3%) resulting in a total revenue figure of $47.26B.
BBY Cost of Revenues: In FY 2021, BBY experienced a yearly increase in their cost of revenues of $3.1B (9.23%), resulting in a total revenue figure of $36.69B. Since the increase (of 9.23%), in BBY's cost of revenue was greater (by 0.92%) than the increase (of 8.3%) in BBY's revenues, we should expect that BBY experienced an decrease (roughly -0.92%) in their FY gross profits.
BBY Gross Profit: In FY 2021, BBY experienced a yearly increase in their gross profit of $525M (or 5.22%) resulting in a total gross profit of $10.57B. This increase is not consistent with our conclusion from the comparison of revenues and cost of revenues between FY 2020 and FY 2021.
BBY EBITDA: In FY 2021, BBY experienced a yearly increase in their EBITDA of $399M (or 13.91%) resulting in a total EBITDA of $3.27B. This increase (of 13.91%) stems from the fact that BBY experienced a increase in their gross profits of 5.22% (as we saw in the previous bullet point).
BBY Net Income: In FY 2021, BBY experienced a yearly increase in their net income of $257M (or 16.68%) resulting in a total net income of $1.8B.
BBY EPS: As a result of BBY's increase in net income of $257M, BBY's EPS also increased (by $1.18) from $5.75 in FY 2020 to $6.93 in FY 2021

Overall, 2021 was a great year for BBY. However, has BBY been able to continue this good performance into 2022? Let's have a look:

BBY Quarterly Financial Report:

BBY Revenues: In Q4 2021, BBY experienced a quarterly increase in revenues of $61M (or 0.51%) resulting in a total revenue figure of $11.91B.
BBY Cost of Revenues: In Q4 2021, BBY experienced a quarterly increase in their cost of revenues of $69M (0.76%), resulting in a total revenue figure of $9.11B. Since the increase (of 0.76%), in BBY's cost of revenue was greater (by 0.25%) than the increase (of 0.51%) in BBY's revenues, we should expect that BBY experienced an decrease (roughly -0.25%) in their Q4 gross profits.
BBY Gross Profit: In Q4 2021, BBY experienced a quarterly decrease in their gross profit of $-8M (or -0.28%) resulting in a total gross profit of $2.8B. This decrease is consistent with our conclusion from the comparison of revenues and cost of revenues between Q4 and Q3.
BBY EBITDA: In Q4 2021, BBY experienced a quarterly decrease in their EBITDA of $-132M (or -12.97%) resulting in a total EBITDA of $886M. This decrease (of -12.97%) stems from the fact that BBY experienced a decrease in their gross profits of -0.28% (as we saw in the previous bullet point).
BBY Net Income: In Q4 2021, BBY experienced a quarterly decrease in their net income of $-235M (or -32.02%) resulting in a total net income of $499M.
BBY EPS: As a result of BBY's decrease in net income of $-235M, BBY's EPS also decreased (by $-0.91) from $2.93 in Q2 2022 to $2.02 in Q4 2021

Overall, it seems as though BBY had a poor financial performance (due to EPS $-0.91) as many of their financial metrics shrunk, most notably their EPS (by $-0.91), as well as their net income (by $-235M), and other metrics (as you can tell from the above bullet points).

However, BBY met their EPS estimate, which is quite notable.

IS BBY Stock's Share Dilution an Issue?

As part of their Q4 2021 earnings release, BBY stated that they currently have 246.4M Shares Outstanding (weighted average), which is down -3.8M shares (from 250.2M shares outstanding in Q2 2022). This is great news for investors as their shares should be gaining value as they hold.

Furthermore, BBY stock has up to 2.6M of shares that they can issue (thereby diluting the BBY stock value). This maximum dilution for the period would only have a dilutionary effect on BBY of 1.1%, which is not favourable. However, if these 2.6M shares were issued, it would still be less than the amount of shares they bought back (which is important).

Latest BBY Stock Analyst Ratings

Here is the current analyst rating distribution for BBY Stock Ratings. In total there are 31 BBY stock analyst ratings.

17 Buys
7 Holds
7 Sells

Analyst Ratings have provided relatively strong indicators of future price movement, which is why they are used to determine if BBY stock is a buy or sell.

BBY Stock Rating and Forecast

Currently, we have 3 financial ratings that help investors get a general idea of a company's valuation. These 3 metrics include DCF, ROE, and P/E, which are very common in the investing/valuation climate.

Firstly, BBY stock has a DCF rating of 5 - Very Strong. DCF ratings determine the value behind a company based on their financial projections, expectations, and discount rate (time value of money). This is one of the most used valuation models in the stock market, and thus a high level of importance should be associated with this rating.

Secondly, BBY stock has an ROE rating of 4 - Strong. BBY's current ROE is 62.16%, which justifies their rank of 4 - Strong. ROE shows us how good (or bad) a company is at using their shareholders funds to generate money (returns). ROE is most useful when compared against the industry average, which is currently 38%. I think that BBY should have a rating of 5 in this section as their ROE is very high and is significantly higher than their competitors average.

Lastly, BBY stock has a P/E rating of 5 - Very Strong. BBY stock price to earnings ratio is currently 7.38 which justifies their rank of 5 - Very Strong. Price to Earnings is the most commonly found financial metric and is best used when comparing a company's p/e to the industry average. BBY operates in the Specialty Retail industry, which currently has an average P/E of 8.44.

Overall, based on the 3 previously mentioned fields, BBY stock has been given a comprehensive rating of 5 - Very Strong. This rating implies that they are very healthy financially.

BBY Price Prediction and Valuation

Latest BBY Stock Ratings

As we know, BBY stock has been given an overall rating of 5 - Very Strong. This implies that BBY stock is sound fundamentally and is a good candidate for being “undervalued”. With this in mind, let's proceed.

BBY Price Forecast using Comparable Analysis

Price to Book (P/B): The BBY stock P/B ratio is 5.69, compared to the average P/B ratio of BBY's peers being 4.51. This implies that BBY is overvalued and their share price should change by a factor of -20.75% to be at fair value (based on BBY's P/B compared to the P/B of their peers).
Price to Equity (P/E): The BBY stock P/E ratio is currently 7.38, compared to the average P/E ratio of BBY's peers being 8.44. This implies that BBY is undervalued and their share price should change by a factor of 14.41% to be at fair value (based on BBY's P/E compared to the P/E of their peers).

Overall, BBY stock is overvalued and needs to experience a change in stock price of (an average of) -3.17% to be considered “at fair value”.

Is BBY Stock a Buy or Sell?

Overall, due to the overall stock rating of 5 - Very Strong (Based off of DCF, ROE, and P/E), as well as the fact that a comparable analysis (P/E and P/B) found that BBY was overvalued and need to experience a price change of -3.17% in order to be at their fair value, I have concluded the following:

Based off of an overall look at BBY's financials (encompassing all of P/E, P/B, ROE, FCF Yield, and DCF) I think it is safe to say that BBY is is near their fair value and has sound fundamentals.

I think that looking at their most recent financial statement should be the deciding factor on taking an investment into BBY or not. Personally, I think that the reaction to this earnings report was bullish and that BBY is at an attractive price for a medium term investment.