Consumer electronics retailer stocks under pressure

Best Buy (BBY) and other specialty electronics retailers including RadioShack (RSH) haven’t yet fully recovered from the impact of declining sales during the recession. To make matters worse, online retailers such as (AMZN) and discount retailers such as Wal-Mart Stores (WMT) are taking away market share.

These retailers are part of the SPDR S&P Retail ETF (XRT).

Gauging Best Buy’s stock performance

Best Buy’s stock compared

Best Buy’s stock price is down 3.55% compared to the beginning of 2010. RadioShack, which is at the brink of bankruptcy, is down 98.1%. In contrast, Amazon’s stock is up 120.7% compared to 2010, and stocks of large retailers Wal-Mart and Target (TGT) are up 58.0% and 67.2%, respectively.

Gauging Best Buy’s stock performance

Relative valuation

Generally, a stock with a lower PE (price-to-earnings) multiple is considered to be undervalued and a good prospective buy. However, you need to be cautious because a lower PE can also indicate that a company doesn’t have decent future growth prospects.

Best Buy’s stock is currently trading at a forward PE ratio of 14.71, which is higher than GameStop (GME) but lower than Wal-Mart, Target, and the broader market represented by the S&P 500 Index (SPY).

Best Buy’s valuation has increased recently, as its turnaround strategy and cost reduction efforts are showing results.

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