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Should You Buy the Dip in Best Buy?

Stock MarketsNov 30, 2021 12:30PM ET
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© Reuters. Should You Buy the Dip in Best Buy?

Electronics retailer Best Buy’s (BBY) shares fell sharply in price despite its recent earnings report, which topped consensus estimates. Investors retreated on concerns over disruptions the company is facing because of organized retail crimes at its stores, which are squeezing its margins. Nevertheless, analysts are optimistic about the company’s growth prospects as holiday spending kicks into high gear. So, will it prove profitable to buy BBY on its price dip? Keep reading to learn our thoughts. Best Buy Co., Inc. (NYSE:BBY), in Richfield, Minn., retails technology products in the United States and Canada. The shares of the electronics retailer have gained 11.2% in price year-to-date. However, the stock fell sharply last week despite the company posting its fiscal third-quarter earnings, which topped estimates and raised its sales outlook for its fiscal 2022. Over the past five days, the stock slumped 4.9% in price to close yesterday’s trading session at $110.95.

The share price retreat was likely due to the company reporting a decline in its gross margin. Its gross margin in the third quarter was 23.5% versus 23.6% a year earlier. The decline can be mainly attributed to stepped-up promotional activity and a drag from a new membership program. The company also cited more organized retail crime at its stores, which is negatively affecting its financials. “We are definitely seeing more and more particularly organized retail crime and incidents of shrink in our locations,” said Best Buy CEO Corie Barry.

However, with analysts expecting increased consumer spending in the holiday season, BBY should benefit. The company expects to generate revenue within the range of $16.4 billion - $16.9 billion in its fiscal fourth quarter. Ethan Chernofsky, vice president of marketing at Placer.ai, a foot traffic analytics company, expects BBY to witness significant growth in offline sales in this holiday season. Moreover, improving its retail context and “the brand’s creative approaches to problem-solving” should enable the company to garner substantial gains over the holiday period. "We are looking forward to a strong holiday season and believe we are extremely well-positioned with both the tech customers want and fast and convenient ways to get it," said Matt Bilunas, Best Buy CFO.

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Should You Buy the Dip in Best Buy?
 

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