I don't hold a position yet, but am considering going long tomorrow. here's why:
1. First and foremost, this thing has had every reason to go down, ESPECIALLY since the other day when the report was out about possibility no bid coming...all this does is go UP...seriously, how many of you would have thought that?
2. Technically, breaking up to $17ish was huge, although congestion in $18 area, I doubt shots will wait around as it is clear too many folks are buying the turnaround story. (not to mention the huge up day before a holiday weekend and a bad market overall)
3. MOST IMPORTANTLY, it seems that the market was extremely happy with the holiday sales announcement and price matching had a lot to do with the positive results. Look everywhere and all you read is the showrooming stuff is the problem. If show rooming is goine, why wouldn't all those critics now turn positive?
I am not saying there are not still issues, but if it's the turnaround story that has been helping the stock rebound and NOT the buyout as most have thought, then why wouldn't this jump to $20 this week, possibly tomorrow?
Thanks for this contribution stkt.
@slickvguy - agree, we do need to see the other side of any story and some shorts made valid arguments. As an experienced investor/trader you can quickly sort out the quality contributions.
In regards to the quick price increase, let's consider that this stock dropped from over 40 to 12 within two years (coinciding with Mr. Dunn's management blunders and a company without leadership – probably the worst time in BBY’s history) .
The stock was simply mispriced at $12 a couple of weeks back - the market assumed a BK case with ever declining comps and with shorts stamping on each other’s toes. Since the sales announcement in January we have been experiencing a kind of mean reversion effect (lets call it the equilibrium price = $20, a nice round number) coupled with earnings and BO speculations.
Not all is well, and I am the last person to deny this. As a normal long-term investor I wouldn’t consider investing in BBY due to an extreme competitive environment and razor thin margins which is typical for any retailing business with online sales pressure. However, neither does BBY go into bankruptcy nor will it be able to demonstrate fantastic growth going forward. We will probably enter a kind of status quo situation where both online retailing and B&M coexist with increased online sales and more efficient use of floor space (CE). As the largest CE retailer I am very much confident the BBY doesn’t go BK any time soon.
Nevertheless, the point is that we are at a critical point of time in a possible turn-around phase with the management factor being neglected. At $12 BBY was a special situation for me with a classic profile of an unloved, under-owned und under-appreciated business and with two uncertain but powerful catalysts. So far it has worked out.
In any case, I'll be out of BBY by the end of this month hopefully when we have reached my equilibrium price – I have already lined up another investment opportunity ;) Good luck to all of you.
Be very careful with this stock. The stock market does not reward sales which was what "level offed" after Christmas. It is Gross Margin that is important, Sales - Cost Of Goods Sold(what it costs to deliver the product). Cd's are being downloaded online, video games are being downloaded on smart phones not being bought in these stores at the level they use to. The truth is Best Buy is limited in the products it can sell versus a WalMart or Target who has such a large variety of products to sell.
The reason this this stock went up so much was a law that is hoped to pass that will allow each state the opportunity to charge online retailers sales tax. There were 3 laws passed last year to help this same problem that did not work. Most states do not collect sales tax on Amazon therefor there is a natural price difference in their products. This will change eventually and help Best Buy, but I fear it will not be enough. They simply do not have a diverse enough product line to survive long term.
Take a look at Circuit Citys stock and let it be a warning.
Sorry, I disagree with the product line/mix necessity argument. According to pareto's law 80% of the profits do come from 20% of key products and this applies to consumer electronics as well. Apple and google wouldn't dare to open their own shops with this small product line – as a retailer you need to have the skill and power to offer an outstanding inventory to clients. Look at the recent incident where customers were outraged that BBY didn't have enough new Microsoft products in stock - not BBY’s fault. Large retail chains have an advantage over smaller ones including smaller online retailers to have first dips on hot, new products/promotion because they have the best showrooms – it’s in the best interest of leading consumer electronics makers – BBY is usually the biggest kid in town hence offering the best showrooms with the highest traffic for new product releases. That’s why I like the google news planning to open more retail space – it confirms that google understands people still do want to see, touch and try out new electronic products – B&M is not going away. But please correct me if I am wrong. If BBY is the biggest kid in town there is no way that makers can ignore that fact.
No doubt it is a gamble. But i think there is significant more probability of upside than downside from here; even without a bid from Schulze. But I believe that Schulze and/or someone/some company will make a bid for BBY in the mid twenties (23 to 27) within the next half year; if not within the next 2 weeks. Considering the significant numbers of shorts, we will see a significantly short squeeze at that moment - and it will be a moment, since the spring will quickly unwind. I was heartened to see Google considering "big box" stores since that lends more creedence that Best Buy can use or even sell some of their big boxes for more revenue.
The Cash Flow is what makes a company attractive. The reason Schulze can't take the company private is because cashflows have been downgraded from 1 billion to 500 million. The company is selling product but not making profit to sustain a buyout. Cashflow is what pays the debt from the buyout. The hope here for Best Buy is Schulze takes individual investors and acquires a large enough stake to control the company.
The interesting analysis to this is he is the person who appointed Brian Dunn and the previous management who has let the company slip. The person who is to "save" the company is the one who let it collapse. The stock has gone from 11 dollars to 17 in two and a half months. The average analyst for the stock is at 13.50. This stock can certainly go up farther but it can drop very quickly and hard just as it did several days ago from 16 dollars to 14.30 in a matter of 10 minutes.
Bravo stktrader......the question which I have posed to a few shorts on this board is 'why does the stock price keep going up if declining rev's/too much overhead etc. is leading the business model to it's death. The other thing which is fact is that the price increase has been on solid up volume. I trimmed my pos'n Friday because there might be a chance to jump in on the 'official' news Shultze is out. I think it could drop a couple of bucks on that news and then be bid right back up. I think you're right, the story here is turnaround/good 4Q......not buyout. Of course, none of us know for sure but the tape in 2013 has been all about going up. Good luck.
I'm not short (have been mainly long), but I think one must look at this company realistically - whether the privatization happens or not (it certainly looks like NOT at this point). The fact that they aren't falling as horribly as before isn't exactly something to celebrate. Sorry, but to my eyes, this looks like a very temporary bump/pump. What happens the rest of the year? It'll be dismal. "Not as bad" might lift a stock temporarily, but it's no comeback. Joly can do a few things, but it's like shuffling chairs on the Titanic. The problem is NOT Amazon! I wish people would stop with that. The problem is a tapped out consumer, low growth with no end in sight, and an oversupply of far too much CE junk, at ever-diminishing prices and margins.
Longs should enjoy this brief respite. I really don't think it's going to last long. And if it actually goes higher here without a deal w/ Schulze, I might start shorting it as well.
As much as I have taken a few shots at Holly, one should not dismiss what she and other shorts say. A lot of what they say is the truth. Don't be a blind long OR short.