uploads///BBY Valuation

Where Best Buy’s Valuation Stands

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Dec. 4 2020, Updated 10:43 a.m. ET

12-month forward PE

Best Buy (BBY) was trading at a 12-month forward PE (price-to-earnings) multiple of 15.9x as of December 22. The company’s valuation multiple has risen 23% since the announcement of its fiscal 3Q18 results in November. Best Buy was in line with the fiscal 3Q18 earnings expectations from analysts but lagged behind sales guidance. Best Buy raised its sales and earnings guidance for full-year fiscal 2018 following its fiscal 3Q18 results.

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Comparison with peers

As of December 22, Best Buy was trading at a premium valuation compared to specialty retailers GameStop (GME) and Aaron’s (AAN), which were trading at 12-month forward PEs of 5.6x and 14.5x respectively. In comparison, the S&P 500 Index was trading at a 12-month forward PE of 19.1x.

The 12-month forward PE ratio is calculated by dividing a company’s current stock price with an estimate of its EPS over the next four quarters. Growth expectations feature among the several factors that influence this forward valuation multiple.

Growth expectations

Analysts expect Best Buy to deliver revenue of $41.2 billion in full-year fiscal 2018, which ends on February 3, 2018. This estimate reflects a growth rate of 4.5%. Analysts expect the company’s adjusted EPS (earnings per share) to rise 12.9% to $4.02 in fiscal 2018.

Currently, analysts expect the company’s revenue to decline 0.9% in fiscal 2019. The company’s fiscal 2019 adjusted EPS is expected to rise about 6.0%.

Based on the guidance issued in November, Best Buy expects its fiscal 2018 revenue to grow in the 4.0% to 4.8% range compared to the previous year. The company expects its adjusted operating income to grow in the range of 7.0% to 9.5% in fiscal 2018.

Let’s conclude this series with a discussion on analysts’ recommendations for Best Buy stock in the next part.

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