Is Best Buy (BBY) now an appropriate choice for value investors? – January 4, 2022

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that go unnoticed and are attractive buys, or offer great discounts off their fair value?

One way to find these companies is to look at several key financial metrics and ratios, many of which are crucial in the value stock picking process. Let’s put Best buy (BBY Free Report) into this equation and find out if this is a good choice for value investors right now, or if investors who subscribe to this methodology should look elsewhere for the best choices:

P / E ratio

A key metric that value investors always look at is the price-to-earnings ratio, or PE for short. It shows us how much investors are willing to pay for every dollar of profit in any given stock, and it’s easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the industry / sector average; and c) how it compares to the market as a whole.

On this front, Best Buy has a year-over-year PE ratio of 9.5, as you can see in the chart below:

Image source: Zacks Investment Research

This level actually compares quite favorably to the market as a whole, as the PE for the S&P 500 is around 24.8. If we focus on the long term trend of PE, its current level of PE puts it below its midpoint over the past five years.

Zacks investment researchImage source: Zacks Investment Research

Additionally, the stock’s PE also compares favorably with its industry’s 12-month PE ratio of 29.9. At the very least, it indicates that the title is currently relatively undervalued compared to its peers.

Zacks investment researchImage source: Zacks Investment Research

It’s also worth pointing out that Best Buy has a futures PE (price to earnings for this year) ratio of just 10.1, which is above the current level. So it’s fair to expect the company’s stock price to rise in the near term.

P / S Ratio

Another key indicator to note is the price / sales ratio. This approach compares the price of a given stock to its total sales, where a lower reading is generally considered better. Some people like this value metric more than others because it looks at sales, something that is much more difficult to manipulate with accounting tricks than profits.

Right now, Best Buy has a P / S ratio of around 0.5. This is below the S&P 500 average, which currently sits at 5.2. We can see from the graph below that this matches the highs of this particular stock over the past few years.

Zacks investment researchImage source: Zacks Investment Research

On the contrary, it suggests some level of undervalued trading, at least by historical standards.

Broad value outlook

Overall, Best Buy currently has an A value score, which places it in the top 20% of all stocks we cover from this look. This makes Best Buy a solid choice for value investors, and other key metrics show that quite clearly as well.

For example, the P / CF ratio (another great indicator of value) stands at 9, (which is a bit better than the industry average of 12.1). Obviously, Best Buy is a solid choice in terms of value from a number of angles.

What about the stock as a whole?

While Best Buy can be a good choice for value investors, there are many other factors to consider before investing in this name. In particular, it should be noted that the company has a Growth score of D and a Momentum score of D. This gives BBY a Zacks VGM score – or its overall fundamental score – of C. (You can read more at Zacks style scores here >>)

Meanwhile, the company’s recent earnings estimates have been mixed at best. While the current quarter’s tax estimate has seen three upward movements and six downward movements, the current year estimate has seen eight upward movements and three downward movements over the two last months.

This had a mixed effect on the consensus estimate. While the current quarter consensus has declined 5% in the past two months, the current year estimate has improved 0.7%. You can see the trend of the consensus estimate and recent stock price development in the chart below:

These mixed feelings from analysts are why the stock is ranked 3 Zacks (Hold) and this is why we are looking for short term online performance of the company.

Final result

Best Buy is an inspired choice for value investors because it’s hard to beat its incredible range of stats on this front. However, with a Zacks # 3 ranking and a slow industry ranking (3%), it’s hard to get too excited about this company as a whole. Additionally, over the past couple of years, the industry as a whole has clearly underperformed the market as a whole, as you can see below:

Zacks investment researchImage source: Zacks Investment Research

So value investors might want to wait for estimates and analyst sentiment to turn around on this name first, but once that happens, this stock could be a compelling choice.


Source link

Comments are closed.