The Risks of Investing in Best Buy
Dec 16th 2012 12:30PM
Updated Dec 16th 2012 12:40PM
Retail is one of the toughest industries to compete in, and Best Buy is a great example of the challenges encountered. As the company attempts to turn around its core business and transition to smaller stores with lower overhead, there's the chance it might not produce enough cash to keep operations humming.
How likely is that? To help answer this question, and the bigger question of whether Best Buy remains a buy, sell, or hold, we've put together a premium report analyzing the company's prospects. For a free sample, read on for an overview of Best Buy's risks.
Even though Best Buy doesn't face immediate bankruptcy, if trends continue, it likely won't survive to see the iPhone 8. Same-store sales have fallen for eight straight quarters, with a 0.8% drop in its fiscal 2011 and a 2.1% drop in 2012. It had its worst same-store performance in the first quarter of this year, with a 5.3% drop.
While now only about 5% of Best Buy shoppers buy online elsewhere, a more connected generation may push this percentage higher. And while matching prices with online retailers is a great defensive maneuver, the cost structure of such a move may hurt the company more than help it.
It seems that turnaround plans center on improving customer service, but such a brand refresh takes time, which is something a new CEO typically has little of in order to impress shareholders. And it remains unknown whether Best Buy can pull off a great retail experience for shoppers.
For those looking toward a buyout, Schulze may find it hard to find enough backers to take on the risky project of turning the store around. Standard & Poor's cut its credit rating to junk status in August. And the seemingly somewhat hostile relationship between Schulze and the board may make it harder to complete a takeover. Recent news says an offer from Schulze is back on the table, but at a lower $5 billion to $6 billion compared to the $10 billion offered earlier this year.
More in-depth analysis available
That was a sample of what's included in our new premium report on Best Buy. The company has a variety of futures in store, from a buyout to bankruptcy to a complete turnaround, offering investors plenty to consider. To help ease this decision and read more about Best Buy's chances, grab your copy of our premium report now.
The article The Risks of Investing in Best Buy originally appeared on Fool.com.Fool contributor Dan Newman has no positions in the stocks mentioned above. The Motley Fool owns shares of Best Buy. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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