Best Buy Shines Even In Weak Economy

Back in November I wrote that Best Buy would be a prime beneficiary of Circuit City’s bankruptcy and given that they were already one of the best run retailers in the country, the stock was cheap at a single digit P/E (around $25 per share). Today Best Buy reported blowout fourth quarter earnings and predicted 2009 earnings of $2.50 to $2.90 per share, which is well above current estimates of below $2.50.

Best Buy shares are up $5 (15%) today to more than $38 per share, which brings the gain since November to over 50 percent. If you have been riding this trend, the shares look close to fair value from my perspective. Taking the middle of the earnings guidance range and applying a 15 P/E (a bit higher than I would choose normally, due to the recession) I get fair value of about $40 per share, so it appears the stock’s huge move is largely behind us.

Full Disclosure: Peridot Capital was long shares of BBY at the time of writing, but positions may change at any time

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5 Thoughts on “Best Buy Shines Even In Weak Economy

  1. Pingback: Topics about Economy » Archive » Best Buy Shines Even In Weak Economy

  2. Parkite on March 27, 2009 at 3:42 PM said:

    Blowout earnings? Didn’t they guide down recently? So they beat lowered guidance?

  3. Chad Brand on March 30, 2009 at 11:47 AM said:

    Wall Street is all about how you do relative to expectations. If expectations are low and you exceed them, your stock goes up. In this case, by 15%.

  4. Parkite on April 1, 2009 at 12:34 PM said:

    I call that “managing expectations”. Guide down, so you can step over the lowered bar. S/b a lot of that this quarter.

  5. Parkite on April 1, 2009 at 12:34 PM said:

    Have you looked at AMZN lately? Ridiculous!

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