Is Now The Time To Look At Buying Best Buy Co., Inc. (NYSE:BBY)?

Best Buy Co., Inc. (NYSE:BBY) saw a decent share price growth in the teens level on the NYSE over the last few months. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s take a look at Best Buy’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Best Buy

What Is Best Buy Worth?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 7.88x is currently trading slightly above its industry peers’ ratio of 6.43x, which means if you buy Best Buy today, you’d be paying a relatively sensible price for it. And if you believe Best Buy should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Best Buy’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Best Buy?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Though in the case of Best Buy, it is expected to deliver a negative earnings growth of -16%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What This Means For You

Are you a shareholder? Currently, BBY appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on BBY, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on BBY for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on BBY should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing Best Buy at this point in time. Case in point: We've spotted 1 warning sign for Best Buy you should be aware of.

If you are no longer interested in Best Buy, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.