Note: Best Buy’s FY’25 concluded on February 1, 2025
The eagerly awaited Nintendo Switch 2 launch is creating excitement among both gamers and retailers. While Best Buy (NYSE: BBY) stands to benefit from the increased demand, even a hit product cycle may not be sufficient to counter the retailer’s rising financial and macroeconomic challenges.
BBY stock has already declined 13% year-to-date, lagging behind the S&P 500’s stable performance. In its Q1 FY 2026 (which ended on May 3) earnings report, Best Buy reported a 2% decrease in net sales and a 5% decline in diluted EPS, impacted by dwindling demand for home theaters, appliances, and drones. While gaming categories—including mobile phones, tablets, and computers—saw some recovery, it’s evident that not even the excitement around the Switch 2 can reverse broader spending exhaustion. For investors seeking growth with lower volatility, the Trefis High Quality Portfolio has surpassed the S&P 500 with 91% returns since its inception, providing a smoother experience amid market turbulence.
History Indicates Potential for Significant Declines
Investors might be underestimating how severe the decline could be. Best Buy has a history of poor performance during economic downturns. During the inflation surge of 2022, BBY fell nearly 55% from peak to trough, while the S&P 500 fell 25%. In the COVID crash of 2020, the stock dropped 45%, and in the 2008 financial crisis, it plummeted 67%. In each of these instances, BBY experienced sharper declines—and often required years to bounce back.
Could history repeat itself? If similar economic challenges resurface, a decrease from today’s $73 to approximately $35 isn’t out of the realm of possibility. Our dashboard How Low Can Stocks Go During A Market Crash illustrates how key stocks performed during and after the last six market crashes.
Q1 2026 Overview: Decline in Sales, Increase in Tariff Pressures
Best Buy’s net income for the three-month period ending May 3 fell about 18% to $202 million, or 95 cents per share, down from $246 million, or $1.13 per share, from the same quarter last year. Excluding one-time expenses, including restructuring costs for its Best Buy Health division, the company reported earnings of $1.15 per share. First-quarter revenue marginally decreased to $8.77 billion. Comparable sales decreased 0.7% year-over-year in Q1. In the United States, comparable sales also fell 0.7% year-over-year.
Adding further challenges are cost pressures related to tariffs. Approximately 30–35% of Best Buy’s goods come from China, facing tariffs of up to 30%, while 40% is sourced from countries like Vietnam, India, South Korea, and Taiwan, which are now subject to a 10% tariff. Best Buy has already raised certain prices as of mid-May 2025 and is urging vendors to diversify their sourcing and reduce costs.
FY 2026 Forecast: Reduced Expectations
For fiscal 2026, the retailer announced its expected revenue range of $41.1 billion to $41.9 billion, down from its previous estimate of $41.4 billion to $42.2 billion. It anticipates adjusted earnings per share to be between $6.15 and $6.30, compared to earlier guidance of $6.20 to $6.60. Looking forward, Best Buy expects consumer behavior to maintain the resilience and caution seen in FY 2025, as elevated inflation continues to increase household expenditures and encourage a discerning, value-oriented approach to discretionary spending, particularly on high-ticket items.
Valuation
Best Buy is currently trading at 18 times trailing earnings, which seems pricey in comparison to its four-year average P/E ratio of 12 times. Nonetheless, the stock’s forward P/E ratio of about 11x indicates a more moderate valuation, possibly reflecting expectations for future earnings growth.
However, analysts’ price targets suggest an upside of only 4% from current prices, indicating limited optimism. This caution seems justified given the company’s weak fundamentals: revenue is expected to remain stagnant in FY 2026, with just a modest 2% increase anticipated in FY 2027. Concurrently, ongoing operational challenges and macroeconomic pressures continue to complicate the overall outlook. Check out our detailed analysis on Best Buy’s Valuation for more insights into what is influencing our price estimate for the stock.
Are You Prepared If BBY Drops to $30?
If you own BBY shares, consider this: Would you hold or sell if the stock dropped to $40—or even $30? The company’s track record during downturns and current margin pressures warrant serious consideration. While new product launches like the Nintendo Switch 2 may provide short-term boosts, they are unlikely to offset the broader factors that are negatively impacting sales and earnings.
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