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What’s Best Buy’s Valuation?

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Updated

Current valuation

Consumer electronics retailer Best Buy (BBY) was trading at a forward PE (price-to-earnings) ratio of 15.0x as of April 18. The company’s valuation has risen 0.2% since the announcement of its fiscal 4Q18 results on March 1. Best Buy’s fiscal 4Q18 revenue as well as earnings were way ahead of analysts’ expectations. Improved consumer sentiment, strong gaming sales, and a favorable competitive landscape resulting from a decline in competitors helped Best Buy end the fiscal year on a strong note.

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Valuation of peers

Best Buy’s peers in the specialty retail space are currently trading at a lower PE ratio. As of April 18, GameStop (GME) and Aaron’s (AAN) were trading at a forward PE of 4.4x and 14.1x, respectively. Best Buy and its peers are trading at a lower valuation multiple than the S&P 500 Index with a forward PE of 17.4x. The forward valuation multiple differs among peers based on several factors like growth expectations and risk-return profile.

Growth expectations

Analysts currently expect Best Buy’s revenue to decline about 0.9% to $41.8 billion in fiscal 2019. Best Buy’s revenue grew by a strong 7.0% to $42.2 billion in fiscal 2018. The company’s adjusted EPS (earnings per share) is expected to rise 12.4% to $4.97 in fiscal 2019. The company’s earnings in fiscal 2019 are expected to be driven by a lower tax rate resulting from the favorable changes under the new tax reform.

Fiscal 2018 included an additional week (53rd week), which added $760 million to the company’s top line.

We’ll look at analysts’ recommendations for Best Buy stock in the next part of this series.

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