Best Buy Investors Can Only Blame Themselves
Sep 11th 2013 2:13PM
Updated Sep 11th 2013 2:14PM
Best Buy shares hit yet a three-year high today, oblivious to another insider unloading a big chunk of shares.
CEO Hubert Joly sold nearly $17-million worth of company stock on Friday, netting roughly $10 million, after backing out the cost of exercising the options that made up the lion's share of the sale. Joly's contract required him to hold his awarded shares for at least two years, but the compensation committee cleared the way for the sale by waiving the final year.
He had a reason for raising the money.
"Mr. Joly has recently gone through a divorce and needs to sell a portion of his holdings in order to cover the costs of that unfortunate event," a company spokesman said in a statement explaining why Joly was selling roughly 20% of his stake in the company that he took over a year ago.
You have to feel sorry for Brian Dunn, the former CEO who was let go last year after breaking a company rule by having an inappropriate relationship with a 29-year old employee. There was no waiver or rule leniency there. Then again, he did walk away with a $6.6-million severance package, so maybe he's the one who got the last laugh here.
Joly's sale isn't the only notable bigwig cashing out. Founder Richard Schulze entered into an automated selling plan to unload a chunk of what was his 20% stake in the retailer between October and March of next year. This was the same Schulze that was actually trying to team up with private-equity investors to take Best Buy private last year.
To be fair, Best Buy's stock has more than doubled since the time when Schulze wanted to buy the company back last summer. Cashing out makes sense.
You won't hear Schulze or Joly admit that they're selling because the stock's valuation has gotten out of whack after more than tripling so far in 2013. Schulze wants to diversify his assets; Joly has a divorce to settle. However, if the stock does peak here -- and it might -- investors will only be able to blame themselves.
Joly has done a great job of shaving overhead at Best Buy, but there's no way that this company is as valuable as it was the last time it traded this high during the 2010 holiday shopping season.
Best Buy still doesn't have a response to Amazon.com and the showrooming trend that's been nibbling away at sales growth. Even in the chain's most recent quarter, revenue and comps dipped slightly. Amazon's North American sales soared 30% in its latest quarter.
Joly has helped improve margins at Best Buy -- and even the reputation is improving -- but until the shoppers start showing up again, it's hard to feel that this is a stock that deserves its multi-year highs. Its two most prolific insiders have moved to sell a lot of stock over the past month. That's a hard thing for bulls to ignore.
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The article Best Buy Investors Can Only Blame Themselves originally appeared on Fool.com.Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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