Best Buy Stock Should Be Avoided
Apr 10th 2013 7:00PM
Updated Apr 10th 2013 7:06PM
Best Buy is the top-performing stock on the S&P 500 this year, up more than 117% since the beginning of January. But don't let that performance fool you. This is an ailing retailer to avoid like the plague.
Shares have rallied since last week's announcement that Samsung is installing semi-autonomous stores within each of the electronic retailer's big-box locations. The thought process here is simple: Best Buy has struggled over the past few years with lagging sales, and it needed some type of lift.
As an analyst told Forbes magazine: "[T]he Samsung partnership may boost Best Buy's service experience to electronics customers and help to eventually increase profit margins. If the combined service with Samsung increases customer traffic, it could help Best Buy win back leverage from suppliers such as Apple, boosting overall profits."
That's a big "if," particularly given Best Buy's track record when it comes to customer service.
More importantly, however, neither the Samsung agreement nor investors' mercy on its stock since the beginning of the year changes one critical fact: For most consumers, electronics are a commodity. As a result, price is the primary factor that dictates where people purchase them, and that accordingly channels potential Best Buy customers to the likes of Amazon.com and Costco.
It's true that Best Buy is now offering to match online prices. But all that does is transfer the pain from its top line down to its bottom line by way of the profit margin -- not something that would help Best Buy stock in any way, shape, or form.
Beyond all this, the executive leadership has been in a state of flux for some time now. A year ago this month, CEO Brian Dunn "resigned" after the head of human resources was said to have uncovered an affair between Dunn and a younger employee. The following month, its founder and chairman, Richard Schulze, was forced out for his failure to take action. Schulze subsequently mounted a failed attempt to take the company private before being invited back as chairman emeritus. And in the midst of all of this, the remaining board members hired a replacement CEO with no discernible retail experience.
Suffice it to say, this doesn't paint a pretty picture for the future success of Best Buy stock regardless of its recent performance. If you're looking for odds like these, in other words, you're better off going to Vegas, where at least you get free drinks.
Want to learn more about Best Buy?
The battle between bricks-and-mortar stores and e-commerce rages on, with Best Buy caught in the middle. After what might have been its most tumultuous year in history, there are now even more unanswered questions about the future for the big-box electronics retailer. How will new leadership perform? Will old leadership take the company private? Will a smaller store format work out for both the company and its brave investors? Should you be one such brave investor? To help answer all these questions, The Motley Fool has released a new premium research report detailing the opportunities -- and the risks -- in store for Best Buy. Simply click here now to claim your comprehensive report today.
The article Best Buy Stock Should Be Avoided originally appeared on Fool.com.John Maxfield owns shares of Apple. The Motley Fool recommends and owns shares of Amazon.com, Apple, and Costco Wholesale. 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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