Best Buy Stock Down 12% Today – Time to Buy BBY Stock?

The price of Best Buy stock is down 12% this morning in pre-market stock trading action following the release of the firm’s financial results covering the third quarter of 2021 as the management guided for worst-than-expected comparable sales growth for the upcoming fourth quarter.

For the three months ended on 30 October, the Minnesota-based tech retailer reported sales of $11.91 billion, a figure that was $60 million above the one reported during the same period last year while it also exceeded analysts’ estimate of $11.62 billion for the period.

Meanwhile, comparable sales grew 1.6% compared to 23% the company reported during the third quarter of 2020 while comparable online sales experienced a 10.1% decline compared to the 173.7% advance the company reported a year ago. Analysts had forecasted a 0.8% decline for Best Buy’s comparable sales.

Non-GAAP consolidated gross profits for Best Buy declined 40 basis points at 23.5% while the firm’s adjusted operating income retreated 30 basis points at 5.8%.

For the upcoming fourth quarter of 2021, Best Buy is anticipating comparable sales growth ranging from minus 2% to positive 1% along with sales between $16.4 and $16.9 billion. Additionally, the company is expecting to see its adjusted gross profit margin decline by 30 basis points. Analysts had estimated a milder comparable sales decline of 0.5%.

This beyond-expected decline in the firm’s comparable sales for what is the most important quarter of the year amid holiday-related demand is one of the reasons why Best Buy stock is dropping this morning.

Finally, non-GAAP diluted earnings per share for the firm landed at $2.08 or 2 cents higher than the figure reported a year ago while it was also ahead of the Street’s consensus estimate of $1.96 per share as compiled by Capital IQ.

Can this downtick prompt a reversal in the latest uptrend BBY stock had been experiencing? In this article, I’ll be assessing the price action and fundamentals of this retail stock to possibly answer that question.

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Best Buy Stock – Technical Analysis

The price of Best Buy stock has been steadily advancing since early October after bottoming at around $105 per share. So far this year, the stock has delivered gains of 40.9% excluding today’s downtick.

This percentage is well above the gains delivered by both the S&P 500 and Nasdaq 100 during that same period but it could significantly decline if this pre-market downtick spills over to the live session.

This month, positive momentum for BBY stock seems to have accelerated as the price broke above the price channel highlighted in the chart. However, this post-earnings decline may plug the stock back into the channel and could affect the short-term outlook for Best Buy stock.

In this regard, we have the Relative Strength Index (RSI) already stepping off overbought levels while the MACD has just moved below the signal line after reaching its highest level since August last year.

Everything points to the possibility of a short-term correction in the price of BBY. How worse that correction is may depend on how stretched the company’s valuation is at the moment.

For now, the 200-day simple moving average seems to be the most important area of support to watch. This marker is currently standing at $115.4 per share.

Best Buy Stock – Fundamental Analysis

Sales of Best Buy have been steadily advancing since 2017, moving from $39.4 billion back then to as much as $47.26 billion in 2020 as the company’s online sales offset the decline that its physical store sales experienced during the health crisis.

Meanwhile, the firm is expected to report full-year sales of up to $52.3 billion resulting in an 11% jump compared to a year ago – its highest year-on-year jump in more than a decade.

Gross profit margins have been steadily improving for the firm and are standing at their best levels in years while operating profit margins are decent and in line with the figures reported in both the 2018 and 2019 fiscal years.

According to data compiled by Koyfin, Best Buy is trading at 41 times its forecasted earnings per share for the next twelve months. This ratio seems particularly stretched considering that the firm’s GAAP earnings per share have been growing at a compounded annual growth rate of around 24% in the past 7 years.

At this point, it would be plausible to expect a correction in the price of Best Buy stock. The extent of that decline is unclear and it would largely depend on the market’s perception about the firm’s short-term outlook amid the challenging supply-chain conditions retailers are experiencing.

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