Best Buy's founder is selling some of his stake. Should investors take it as a signal that things may be changing for the company?
Best Buy’s stock is up an incredible 200% this year. So why is founder Richard Schulze selling some of his 20% stake?
Officially, Schulze sale preplanned to help him diversify his personal holdings and to raise $900 million for his educational foundation. The sales will begin on October 1 and end in March 2014, with Schulze having no say on when the actual sales will happen.
Last year, Best Buy was the third-worst performing stock in the entire S&P 500. The electronics retailer saw its shares drop a miserable 46.5%. In fact, from the start of 2010 until the end of 2012, shares dropped 70%. An overhaul and a new CEO – Hubert Joly – helped to give the company a reboot.
While the company’s most recent quarter saw a 12% drop in revenues from $10.5 billion to $9.3 billion, gross profit margins went from 24% to 29%. Likewise, net income before extraordinary items went from $12 million to $266 million.
Despite its phenomenal returns this year and current price near $35 per share, Best Buy will have to nearly double just to get back to where it was trading in 2006. This as the market gets more competitive with online retailers like Amazon nipping at its heels.
But, is Schulze’s sale a legitimate diversification and fundraising issue? Or should investors take it as a signal that things may be changing for Best Buy?
On the fundamentals is John Stephenson, portfolio manager at First Asset Investment Management. Stephenson believes that one of the things affecting Best Buy’s sales has to do with what Google is doing. Looking at Best Buy’s charts is Talking Numbers contributor Enis Taner, Global Macro Editor at RiskReversal.com. Taner explains why he is currently short the stock.
To see Stephenson and Taner analyze if Best Buy is a good buy or if you should be selling some of your shares along with founder Richard Schulze, watch the video above.