Here's Why Best Buy (BBY) Could be a Great Value Stock
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 are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Best Buy Co., Inc. BBY stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is 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 average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Best Buy has a trailing twelve months PE ratio of 15.54, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 20.32. While Best Buy’s current PE level puts it above its midpoint over the past five years, the current level stands below the highs for the stock, thus leaving scope for entry.
Further, the stock’s PE also compares favorably with the Zacks classified Retail – Wholesale sector’s trailing twelve months PE ratio, which stands at 27.34. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Best Buy’s forward PE is roughly same as its trailing twelve months value, so we might say that the forward earnings estimates are incorporated in the company’s share price as of now. We define forward PE as current price relative to the Zacks Consensus Estimate for the current fiscal year.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Best Buy has a P/S ratio of about 0.46. This is way lower than the S&P 500 average, which comes in at 3.14 right now, indicating that the stock is undervalued from this aspect too.
Broad Value Outlook
In aggregate, Best Buy currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes Best Buy a solid choice for value investors.
What About the Stock Overall?
Though Best Buy might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘B’ and a Momentum score of ‘A’. This gives BBY a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Notably, the company’s recent earnings estimates have been quite encouraging. The current quarter has seen six estimates go higher in the past sixty days compared to two lower, while the full year estimate has seen 11 up and no downward revisions in the same time period.
This has had a meaningful impact on the consensus estimate as the current quarter consensus estimate has risen by 5% in the past two months, while the full year estimate has increased 4.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Best Buy Co., Inc. Price and Consensus
Best Buy Co., Inc. Price and Consensus | Best Buy Co., Inc. Quote
Thanks to this bullish trend, the stock boasts a Zacks Rank #1 (Strong Buy), indicating why we are looking for outperformance from the company in the near term.
Bottom Line
Best Buy is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Apart from having a top Zacks Rank, the company also flaunts a solid industry rank (Top 2% out of over 250 industries). Incidentally, over the past one year, the Zacks categorized Retail – Consumer Electronics industry has clearly outperformed the broader market, as you can see below:
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
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