Analysis of Best Buy 2014

Company: Best Buy

ISIN US0865161014 | WKN 873629

Business: An American home electronics retail chain. They have two pillars that they stand on: The Stores (1,400 of which 70% of the Americans can reach in 15 minutes receiving professional advice and help with their home electronics) and the Web Store (that together with the stores have more than 1.5 billion visits each year).

Active: In the US, Canada, China and Mexico.

P/E: 24.0

Comment: As I have mentioned I will keep mixing of making analysis of new companies with an update of especially the companies with negative earnings on the All company analysis list and Best Buy is part of that update.

Here you can find the previous analysis of Best Buy.

The P/E of Best Buy is far too high for me with 24.0 and the P/B is up at a similar unpleasant level of 3.2 which gives a very clear no go from Graham. The earnings to sales are very low with only 1% but the ROE is acceptable with 13.4%. The book to debt ratio I also find a bit too low with 0.4.
In the last seven years they have had a yearly growth rate of 0.8% which is seriously bad and I assume due to the Amazon effect. This then gives us a motivated P/E of 9 to 12 which means that Best Buy is highly overvalued on the market today.
They pay a tiny dividend of 1.9% which represents 44% of their earnings so at least they are not too high there.

Conclusion: Neither Graham nor I like Best Buy. They need to more than double their earnings for being even close to be of interest to us. The P/E and the P/B are too high and the dividend payments too low for it to be of any interest. With a major earnings jump they could once again be of interest though.

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