If you ask business experts what they consider as the biggest comeback, Best Buy (NYSE:BBY) would be among the names. Up until the latter half of the prior decade, Best Buy stock could do no wrong. As the premiere big-box retailer specializing in the latest electronic gadgets, the company enjoyed a seemingly unassailable moat.
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However, e-commerce firm Amazon (NASDAQ:AMZN) started to flex its muscles. As the years passed, brick-and-mortars started to lose their relevancy for the consumer. Because of this dramatic development, BBY stock likewise started to slip. Then came the 2008 financial crisis and subsequent recession, and BBY started to lose all traction.
In December 2012, Best Buy stock was a mess and shares hit multi-year lows. During my tenure at Sony (NYSE:SNE), I would often hear the joke that Best Buy was Amazon’s showroom: people would come in, try out their target products, and buy it on Amazon.com.
Thankfully for BBY stock, that situation has completely reversed. Due to a shift toward service-oriented retail, along with revenue diversification, Best Buy transitioned into a legitimate Amazon competitor.
However, management will now need to dig deeply into its bag of tricks. This time, it’s not a rival but a geopolitical threat that risks undermining Best Buy stock.
With the U.S.-China trade war clouding investment markets this year, the specter dampened China-dependent retailers like BBY. Later, a disappointing showing for the company’s fiscal second-quarter earnings report – which demonstrated the trade war’s impact – took a sizable chunk out of the BBY stock price.
So, how should investors approach shares amid this economic dispute?
Positive News for Best Buy Stock Despite the Trade War
Of course, one of the biggest reasons why retail investments like Best Buy stock have suffered volatile or pensive trading is due to the threat of higher prices. Since many if not most of the electronic gadgets that we love are made in China, an unresolved trade dispute would hit consumers in the wallet.
Because of this situation, traders took a dim view of Best Buy’s fiscal Q2. In it, the company saw a 1.6% lift in same-store sales compared to an expected 2.1% increase. That was probably the biggest negative catalyst for BBY stock. Further, the same-store sales miss confirmed that other competitors, including Walmart (NYSE:WMT), Target (NYSE:TGT) and Amazon encroached on the retailer.
However, I believe that management should continue the course with their service-oriented strategy. As a personal example, I finally decided to cut the cord and buy a Roku (NASDAQ:ROKU) player. Being not too savvy about streaming TV, a helpful BBY employee guided me toward the best choice for my needs.
Honestly, I don’t think I would get that kind of service from your run-of-the-mill Target team member. And Walmart? As Tony Soprano might say, “fuggedaboutit!”
Plus, even if the trade war worsened – and let’s face it, it probably will – Best Buy stock still has a strong case. Seemingly, people cannot get enough of their gadget addiction. So long as the economy stays reasonably intact, the company offers significant consumer value and convenience.
And BBY stock isn’t just a retail-centric investment. As I mentioned two years ago, management has shifted their focus toward revenue diversification. One such opportunity is in senior monitoring systems. Over the next few years, this segment has the potential to expand dramatically as baby boomers enter retirement.
Buying BBY Stock? Wait Just a Second!
Under this context, it appears that Best Buy stock is a long-term buy with nearer-term troubles. While I generally agree with this assessment, the trade war makes things a little more complicated.
Currently, I believe that BBY stock has turned into an emotional investment. Although management is making the right moves in terms of diversification, the headlines simply matter more to Wall Street.
If so, this would be incredibly problematic for Best Buy stock, along with other discretionary retailers. We’ve seen multiple head-fakes regarding a trade resolution. I’d almost say that President Donald Trump relishes in toying with the American people.
Thus, I’d wait for more substantive news regarding the trade war. Frankly, the potential upside in gambling ahead of such a development is limited relative to the risk that this is all just another fake-out.
As of this writing, Josh Enomoto is long SNE.
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