Is Best Buy Set for a Comeback After Recent 5% Weekly Share Price Jump?

If you’re looking at Best Buy’s stock and wondering whether it deserves a spot in your portfolio, you’re not alone. Best Buy’s recent performance has kept longtime investors on their toes and new investors intrigued by the potential for a turnaround. Last week alone, the stock climbed 5.4%, a move that may have caught the attention of value hunters who see signs of change amid a longer-term dip. Yet, when you glance at the returns over the past year, there’s been a noticeable drawdown, with shares down 21.7%. That is a sharp contrast to the notable 38.5% return over the past three years, suggesting market sentiment is shifting even as some investors keep faith in the company’s underlying business.

With consumer tech demand shifting and competitive pressures evolving, Best Buy’s price swings reflect more than just industry headwinds. The market seems to be recalibrating its risk. It may be pricing in both uncertainty and a dash of optimism about future growth. For those eyeing value, here is a key insight: according to a comprehensive score that checks if the company is undervalued on six key metrics, Best Buy lands at a 4 out of 6. This means there are clear signs that the stock could be trading below its fair worth, but not every box is ticked just yet.

So is Best Buy really a bargain, or is the recent rally just another blip? Let’s dig into how analysts and value metrics approach the stock, keeping an eye out for an even better way to understand its true worth by the end of our journey.

Why Best Buy is lagging behind its peers

Approach 1: Best Buy Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) approach estimates a company’s true value by projecting its future cash flows and discounting them back to today’s dollars. This helps investors look past near-term ups and downs, focusing instead on how much cash the business will likely generate long term.

For Best Buy, the DCF model uses a current trailing twelve-month Free Cash Flow of $1.31 Billion. Analysts project that by 2028, free cash flows could reach $1.72 Billion, with longer-term forecasts stretching to nearly $2.42 Billion by 2035. While the first five years of these forecasts come from analyst estimates, further-out figures are extrapolated based on reasonable growth rates.

Running all these numbers through the DCF model, Best Buy’s estimated intrinsic value stands at $146.59 per share. Compared to the company’s present market value, the DCF calculation suggests the stock is trading at a 48.1% discount to its fair worth. This indicates it may be significantly undervalued relative to its future cash-generating potential.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Best Buy.

Our Discounted Cash Flow (DCF) analysis suggests Best Buy is undervalued by 48.1%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Best Buy Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation metric for companies that consistently generate profits, like Best Buy. Since it compares a company's current share price to its earnings per share, it helps investors judge whether the market is pricing the company's profit potential appropriately.

What makes a “fair” PE ratio is not set in stone. Expectations for future growth, the predictability of earnings, and overall risk shape what investors are willing to pay for each dollar of profits. Generally, higher growth and stability justify a loftier multiple, while slower growth or greater risk pull it lower.

Best Buy currently trades at a PE ratio of 20.56x. Relative to the Specialty Retail industry average of 17.75x and its peer average of 48.20x, Best Buy is priced somewhat above the sector norm but well below many peers. However, relying solely on these benchmarks can be misleading since they do not always account for company-specific factors.

Simply Wall St’s “Fair Ratio” aims to solve that by digesting details like Best Buy’s earnings growth outlook, profit margins, market capitalization, and industry traits. Its proprietary fair PE for Best Buy comes in at 21.61x. This figure is considered more robust than a simple industry or peer comparison, as it reflects a balanced view of valuation, risk, and growth potential.

With Best Buy’s actual PE of 20.56x sitting almost perfectly in line with its 21.61x Fair Ratio, the market appears to be valuing the stock just about right for its current prospects.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Best Buy Narrative

Earlier we mentioned that there’s an even better way to understand valuation, so let's introduce you to Narratives. Narratives are a simple yet powerful concept: they let you connect your own story or investment perspective about a company with the numbers behind its future, combining your assumptions for revenue, earnings, and margins with an estimated fair value.

This approach ties together the company’s business outlook and strategy with a transparent financial forecast, so you can clearly see what needs to happen for an investment to make sense. It’s not just numbers on a screen; it’s your view on what Best Buy’s future could look like, made practical and accessible through an easy-to-use tool on Simply Wall St’s Community page, which is trusted by millions of investors.

Narratives help you decide whether to buy or sell by revealing the gap between Fair Value and today’s Price, and they automatically update as news breaks or earnings come out. For example, some investors estimate Best Buy’s fair value as high as $84 per share, seeing room for growth if digital and service innovation pay off, while others see it closer to $60 per share due to fierce retail competition and margin pressures.

Do you think there's more to the story for Best Buy? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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