September 26, 2017

BBY – Market expectations are for Uniform ROA to stabilize at recent highs, but management’s concerns about comp sales growth, margins, and gross profits imply this may be too bullish


  • Best Buy Co., Inc. (BBY:USA) is currently trading near recent highs relative to UAFRS-based (Uniform) Earnings, with a 16.2x Uniform P/E. At these levels, the market is pricing in somewhat bullish expectations, which, given management’s concerns about comp sales growth, margins, and gross profits, may be unwarranted
  • Specifically, management may be concerned about the sustainability of higher-than-expected comparable sales growth across their major categories. They also appear to be downplaying concerns about margin pressures from e-commerce growth, and slowing gross profit growth. Should the firm fail to sustain Uniform ROA at recent highs, as management sentiment suggests, multiple compression and equity downside would be warranted

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