The best buy of Best Buy (BBY) obviously would have been made back in the spring when the shares bottomed out below $50 per share. Did you grab any? Me neither. I did grab some of two breakouts since. Made some lunch money on those trades. Could have had surf and turf for the entire family if I had just bought and held. That's not me though. I force larger profits than losses through a core set of disciplines that allows for positive performance even when mired in a batting slump. Know what works. Know what works for you.
That said, Best Buy reported the firm's fiscal third quarter on Tuesday morning. Basically, Best Buy ripped the cover off of the ball, but the shares are selling off a bit. Why? No forward guidance, but it's not just that. It's more or less the implication that though the company and its stock have been aided by the pandemic economy, there would at this juncture clearly be uncertainty around any expected continuance of these trends, at least to the extent that we have seen over the past eight months. So, buy the dip? Let's see if we can figure that out for you. For me.
The Quarter Reported
For the period ended October 31st, Best Buy reported adjusted EPS of $2.06, seriously beating expectations down around $1.70. The firm posted revenue generation of $11.85 billion, this was good for year growth of 21.4%, and also a significant beat of the even $11 billion that Wall Street had been looking for. Same-store sales ran 23% versus a projected 13.6%. Broken out, this growth came to 22.6% domestically, and 27.3% internationally.
Net income for the quarter amounted to $391 million (or GAAP EPS of $1.48), which was up from $293 million for the year ago period. I think perhaps the most impressive data-point taken away from the numbers today is the firm's growth in e-commerce, which rang in at 174%. Incredible, but not really. I need a camera for my work computer. I do intend to return to television when I feel well enough, and I do think I am making progress. I could run over to Best Buy today and come home with one... and hopefully that's all. Better to shop over the internet whenever possible as the pandemic rages on. I don't think I could do a Round Two with that beast. In fact, in terms of revenue derived through e-commerce alone, for BBY... Q3 2020 beat Q4 2019, Q4 obviously being any retailer's best quarter most years.
Today's Weakness
The profit taking, and that's what this is, is being driven by this. CFO Matt Bilunas said, "While the demand for the products and services we sell remains at elevated levels as we start the fourth quarter, it is very difficult how sustainable these trends will be due to the significant uncertainty related to the various impacts of the pandemic. Thus, similar to the last two quarters, we are not providing financial guidance today." Far more telling than anything I saw mentioned by CEO Corie Barry in what I have read regarding strategy or spending... though admittedly, I was not on the call.
My thoughts upon reading the Bilunas comment were that he was being honest. I mean how could one selling even appliances and "work from home" products predict anything going into this winter season. Completely understandable. The problem is that with honesty around uncertainty comes a perceived vulnerability. What's vulnerable right now are the profits of shareholders and they are booking those profits right now.
The Chart
What I see is a double bottom (or is it a triple top?) at the top end of a seven month uptrend that rounded prior to the release of Q3 earnings. Now, there is a little blood on the floor. The 50 day SMA stands at $114.20. The question for me, as that line has been pierced to the downside, is can it be retaken prior to the closing bell, or the holiday later this week?
The fact is that I kind of like Best Buy. I like the way the firm has repositioned itself under Barry's leadership and I like what the firm has done to refinance the debt load. I have no problem being long Best Buy going into Black (now Cyber) Friday and Cyber (yes, Cyber) Monday. I expect that I will be long at least an entry size position in this name by the time the Dallas Cowboys and the Washington Football Team (both 3-7) play for sole possession of first place in the NFC East - at least for a couple of days - on Thursday.
This will be a matter of catching the name on the rebound off of that 50 day line, or trying to let the shares approach the lower end of that "double bottom" around $110. Best Buy might not be the best buy, but I do believe that the name is a good buy.
