Get Ready To Buy The Dip With Best Buy

For a while now Best Buy (NYSE:BBY), the $30 billion electronics retailer, has been pinned as one of the better-performing retailers in 2020, a year that has forced many to adapt or die. Coming into yesterday’s release, shares were not only up more than 150% since March, but trading at all-time highs. While other names from the high street have struggled to pivot to online sales, Best Buy seems to have made a permanent switch in its focus on the digital market, with yesterday’s Q3 earnings report showing investors just how successful they’ve been.

Their domestic online sales were up a staggering 174% year on year, this in the quarter that doesn’t include Black Friday or the holiday season. Their U.S. appliance sales were up 39%, effectively triple the 13% that analysts had been expecting while gross margins also came in on top. Total revenue and EPS also beat the consensus with the former up 21% on the year. At first glance, investors would be forgiven that the company’s latest earnings report would be enough to send them soaring again, but that hasn’t been the case yet.

Solid Buying Opportunity

The stock actually finished down 7% on the day, reminding investors that the market can be a funny place sometimes. It looks like a lack of guidance from management seems for the coming quarter has spooked a few of the heavyweights, who were likely looking for a more confident approach. Instead, Best Buy HQ struck a cautious tone with the release and warned investors to expect higher supply chain costs and squeezed margins that are typical of the holiday period.

CFO Matt Bilunas summed it up when he said:

“While the demand for the products and services we sell remains at elevated levels as we start the fourth quarter, it is very difficult for us to predict how sustainable these trends will be due to the significant uncertainty related to the various impacts of the pandemic. Thus, similar to the last two quarters, we are not providing financial guidance today.”

However, they’ve done exceedingly well through all of the uncertainty so far and in reality, yesterday’s dip only serves to offer a great entry point for those of us with a longer view. It didn’t garner too much attention in the initial fallout from the report but another factor that makes their shares super attractive was management’s reinstatement of their shares repurchase program. This had been suspended at the onset of COVID and while shares obviously didn’t need any extra help in setting multiple all time highs since, the fresh demand will fuel the next stage of the rally.

Plenty To Be Excited About

While investors will miss the extra bit of ‘umph’ that some guidance from management might have provided, there were still plenty of comments to keep them excited. For example, the company has highlighted solid growth in the home cinema category, pointing out a return of customers who hadn’t shopped there in years. They’re also expecting many of the standout features of yesterday’s report to be permanent, such as consumers’ preference for online shopping and drive-by pickups.

As recently as last week, 13F filings from the likes of Coatue Management, who manage $19 billion, showed fresh positions opened in Best Buy shares and at the end of last month, Piper Sandler picked them as their standout winner of the upcoming holiday season. At the time they reiterated both their Overweight rating and $138 price target which, with yesterday’s dip, suggests upside of 25% which should entice even the more cautious investor to dip the toe in. Technically speaking, shares have fallen back towards support on a rising uptrend that’s been in play since July and are likely to bounce off it again, making shares a good buy if not the best buy to end the year with.

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