Let's go over a few reasons why Best Buy (BBY) stock could go from hero to zero this year.
1. Growth is going the wrong way. Stocks that more than triple in a year are often on a growth tear, but that's certainly not the case with Best Buy. Analysts see revenue and earnings per share declining 7 percent and 13 percent in the fiscal year that ends later this month.
Best Buy started to bounce back when it became clear that the superstore chain wasn't going away. However, fundamentally speaking it has just now started to bottom out.
2. Consumer electronics may never be the same. Best Buy may be selling a fair number of smartphones and tablets, but what happens after that? Unlike the PCs, TVs and CD players that used to define Best Buy's business a few years ago with a steady diet of software discs, DVDs and CDs, today's hot devices feed into digital ecosystems that bypass Best Buy completely.
We're already seeing the cracks. Smaller rival HHGregg (HGG) spooked the market earlier this month by announcing preliminary holiday results showing a 19.7 percent decrease in consumer electronics sales and a steeper 24.5 percent slide in computing and wireless products.
Best Buy likely held up better than that, but it's still a trend that doesn't bode well for the retailers of consumer electronics and physical media items.
3. This is no longer a juicy dividend play. Best Buy's quarterly payout of 17 cents a share was a major attraction when the stock closed out 2012 at $11.85.
The quarterly dividend remains the same, but with the stock closing out 2013 at $39.88 the yield for new investors drops all the way down to 1.7 percent. When you consider that interest rates inched higher through 2013 it makes Best Buy less attractive.
4. Best Buy is no longer cheap. The days of Best Buy trading at an earnings multiple in the mid-single digits are toast. The stock kicked off 2014 fetching 16 times this fiscal year's projected profitability and 14 times the profit target for the new fiscal year that begins next month.
That's not an outrageous multiple, but it's not as if Best Buy is growing its sales again. Wall Street is braced for flat revenue growth in the year ahead, and since that follows a double-digit decline over the past year we're talking about a chain that still won't be where it was two years ago in terms of total sales.
5. Sector rotation cuts both ways. Investors poured into consumer electronics retailers early last year. It wasn't just Best Buy. Conn's (CONN) more than doubled, and HHGregg nearly doubled in 2013.
The market raced into these retailers after Best Buy's new CEO showed a commitment to cutting costs and all three chains saw healthy upticks in their appliances and home products sales as the housing boom took off. Conn's and HHGregg are more appliance-centric than Best Buy, but it was still a good reason to buy into the chains that were delivering new fridges and mounting microwave ovens in new digs.
The climate is clearly starting to move away from this retailing niche in 2014. Sector rotation may not seem fair when the herd is moving out of your stocks, but the rally of 2013 for Best Buy and its smaller peers was never fully justified.
It's going to be a long year for Best Buy.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.