As of May 26, Best Buy was trading at a 12-month forward PE (price-to-earnings) ratio of 10.9x. On May 24, Best Buy’s valuation multiple fell 7.7% as the company issued a bleak outlook for fiscal 2Q17. A forward PE multiple tells us how much an investor is willing to pay for the company’s next four quarters of earnings.
Comparison with specialty retailers
We’ll compare Best Buy’s valuation multiple with other specialty retailers that also sell consumer electronics. As of May 20, GameStop (GME), Aaron’s (AAN), and Conn’s (CONN) were trading at forward PE ratios of 7.2x, 11.0x, and 12.0x, respectively.
After the fiscal 1Q17 results, analysts expect Best Buy’s fiscal 2017 adjusted EPS (earnings per share) to rise 4.7% to $2.91. Analysts expect Best Buy’s fiscal 2017 revenue to fall 0.7% to $39.3 billion. The iShares Russell Mid-Cap ETF (IWR) has 0.1% exposure to Best Buy.
Analysts expect GameStop’s sales and adjusted EPS to rise 1.6% and 3.3%, respectively, in the fiscal year ending January 28, 2017. Aaron’s sales and adjusted EPS are expected to rise 4.7% and 4.2%, respectively, in the current fiscal year. Analysts expect Conn’s sales to rise 7.4% and adjusted EPS to fall 28.2% in fiscal 2017.
Tough market conditions
Best Buy is facing continued softness in mobile phones and tablets. These two products belong to the Computing and Mobile Phones category, which is the company’s largest category in terms of revenue mix. This category’s same-store sales fell 3.5% in 1Q17. Based on the current industry conditions, Best Buy expects a slight decline in revenue in the first half of fiscal 2017 followed by growth in the second half.
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