Why Has Best Buy Stock Dropped So Much?

Even a solid earnings beat couldn’t save Best Buy from an analyst-induced stock price drop, but is it time for investors to start worrying?

Nov. 24, 2021

Despite posting a more than solid third-quarter earnings report, Best Buy (NYSE: BBY) saw its share price plummet yesterday. Trading down over 12%, the company has run afoul of analysts who anticipate a difficult holiday period ahead.

With adjusted earnings per share of $2.08 against an expected $1.91, on revenue of $11.91 billion versus a predicted $11.58 billion. These results would normally have investors clamouring to buy up the stock, so why aren’t they?

What happened and should investors be worried?

Revenue was bolstered by consumer electronics in particular as more and more people sought to upgrade their home offices or kitchens. As CEO Corie Barry put it, “more people continue to sustainably work, entertain, cook, and connect at home,” so this revenue boost should come as no real surprise. 

However, this alone was not enough to persuade investors to continue to back the firm. A conservative Q4 outlook, coupled with a range of factors such as a predicted consumer shift towards travel and entertainment, have seen sentiments turn bearish on the electronics retailer.

The company was quick to point out its digital success in its earnings call, with Chief Financial Officer Matt Bilunas extremely confident in the effect a new membership program will have on the company’s underlying financials. This service will focus on speed of delivery and customer support as its main selling points, with Bilunas adding that “we are looking forward to a strong holiday season and believe we are extremely well-positioned with both the tech customers want and fast and convenient ways to get it.”

So should I buy Best Buy stock?

Best Buy is currently experiencing a rather sharp pullback in response to its Q3 earnings. If you are confident in Best Buy and its ability to be a strong stock over the next 10 years, now would be an opportune time to buy. It would be wise to dig a little deeper into its underlying financials, however, as Q4 outlooks remain quite conservative. Even more worryingly, gross margins in Q3 declined in what was possibly a large reason for the stock’s downward slide.

Best Buy certainly has plenty of positives to talk about. Its new membership program, booming digital sales, and access to a lucrative product set are all points to be pleased with as a potential investor. Caution must be exercised though before making any decisions, and perhaps this holiday season will give us a clearer insight into what the future holds for the company.
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