Best Buy’s stock (NYSE: BBY), an electronics specialty retailer, has increased 12% from around $78 to $87 (as of Dec 9, after close) year-to-date, underperforming the broader indices, with the S&P growing about 28% over the same period. At the same time, a tough comparison with the pandemic, stimulus-induced growth, and inflationary headwinds have hurt the consumer electronics retailing niche. Favorable factors such as early holiday shopping and new product releases in the recent Q3, including iPhones and AI-enabled laptops, also did not help the retailer meet sales expectations in Q3. The electronics retailer posted $1.26 (up 2% year-over-year (y-o-y)) in adjusted EPS in Q3, falling behind the $1.30 consensus, and $9.45 billion in revenue (down 3% y-o-y), missing the analyst expectation of $9.63 billion. In fact, Best Buy’s revenues have declined 4% y-o-y in the first nine months of FY 2025 (year ending Jan 2025) and also fell 11% last year in FY 2024. So why is the stock trading higher?
There could be several reasons for this. Firstly, Best Buy has been diversifying its services, notably through Geek Squad and its health segment, to help product sales, enhance margins, and boost customer engagement. This strategy along with increased membership programs has driven growth, increasing gross margins to 23.4% in the first three quarters of FY 2025 from 22.9% last year. Its operating margins also grew 30 basis points to 3.8% during the same period.
Secondly, the company’s comparable sales came in at negative 3.7% in the first nine months of FY 2025, which improved from the previous period’s decline of a negative 7.8%. The largest drivers of the decline in comparable sales on a weighted basis were appliances, home theater, and gaming. Those drivers were partially offset by growth in computing, tablets, and sales in the services category. Lastly, the leadership is optimistic about the industry’s ability to stabilize and potentially grow. Best Buy’s strategic initiatives such as expanding Best Buy Express in Canada and planning a U.S. marketplace launch are expected to drive future growth.
Overall, the performance of BBY stock with respect to the index over the last 3-year period has been lackluster. Returns for the stock were 4% in 2021, -17% in 2022, and 3% in 2023. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could BBY face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?
Can Best Buy Live Up To Its Name?
Best Buy has revised its financial guidance for FY 2025, projecting total revenue between $41.1 billion and $41.5 billion, compared with prior guidance of $41.3 billion to $41.9 billion. This updated outlook reflects an anticipated decline in comparable sales of 2.5% to 3.5% (compared with its prior expectations of a 1.5% to 3% drop). The revised guidance reflects a cautious stance amid persistent economic uncertainty and volatile consumer spending habits. A market cooldown is expected before sales regain momentum in FY 2026.
We forecast Best Buy’s Revenues to be $41.4 billion for the full year 2025, down 5% y-o-y. Looking at the bottom line, we now forecast adjusted EPS at $6.23. Given the changes to our revenues and earnings forecast, we have revised our Best Buy’s Valuation to $90 per share, based on $6.23 expected EPS and a 14.4x P/E multiple for fiscal 2025 – almost in line with the current market price.
U.S. President-elect Donald Trump announced plans to increase import tariffs. An additional 10% tariff will be imposed on all Chinese goods, while imports from Mexico and Canada will face a 25% tariff. This move is consistent with Trump’s campaign promises, which included even higher tariff rates. Notably, China and Mexico are the top import sources for Best Buy’s merchandise. The company anticipates that the increased costs resulting from these tariffs will be shared among itself, vendors, and customers.
It is helpful to see how its peers stack up. Check out how Best Buy’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates