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Where Does Best Buy’s Valuation Stand Compared to Its Peers?

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12-month forward PE

Best Buy (BBY) was trading at a 12-month forward PE (price-to-earnings) ratio of 10.4x on July 5, 2016. The 12-month forward PE ratio is impacted by many factors, including expected growth, risks and uncertainties, and investors’ willingness to pay for the next four quarters of earnings.

The company’s valuation multiple fell by 7.7% on May 24, the day the company announced its fiscal 1Q17 results. On a year-to-date basis, the company’s 12-month forward PE has declined by 5.9%.

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Comparison with peers

Specialty retailers GameStop (GME), Aaron’s (AAN), and Conn’s (CONN) were trading at 12-month forward PEs of 6.6x, 9.5x, and 26.5x, respectively, on July 5. These specialty retailers sell consumer electronics aside from other products. Compared to its peers, Best Buy is a pure-play consumer electronics retailer. The Vanguard Dividend Appreciation ETF (VIG) has 0.3% exposure to Best Buy.

Analysts expect GameStop’s revenue and adjusted EPS to rise by 0.8% and 2.3%, respectively, in the current fiscal year. GameStop is involved in the specialty retailing of multichannel video games, consumer electronics, and wireless services.

Aaron’s is expected to report revenue and adjusted EPS growth of 5% and 4.2%, respectively, in the current fiscal year. Aaron’s is a specialty retailer of furniture, consumer electronics, home appliances, and accessories.

Conn’s, which is a highly volatile stock, is a specialty retailer of furniture and mattresses, home appliances, consumer electronics, and home office products. Conn’s also provides consumer credit.

Conn’s valuation multiple changed significantly on June 3, when Piper Jaffray downgraded the stock to “hold.” Piper Jaffray lowered the fiscal 2017 EPS estimate for the company from $0.82 to -$0.38 and its fiscal 2018 EPS estimate from $1.41 to $0.21.

The poor performance of Conn’s credit business is one of the reasons for the dismal bottom line expectations for the company. Currently, analysts expect Conn’s sales to rise by 5% in fiscal 2017. Conn’s is expected to post an adjusted loss per share of $0.05 in fiscal 2017 compared to an adjusted EPS of $1.03 in fiscal 2016.

Overall, consumer electronics retailers might continue to be under pressure due to an uncertain macro environment and softness in the consumer electronics industry.

For more updates, please visit our Consumer Discretionary page.

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