Earnings Recap: Best Buy

Minnesota-based Best Buy Inc. reported Q3 earnings that blew through analyst expectations Tuesday before the bell.  The retailer earned $0.53 / share, compared to expectations of $.043, on net income of $227 million, compared with just $52 million for the same period last year.

However, as details of the report began to unfold, it became clear that a large portion of BBY’s Q3 income had come from strong sales of lower-end notebooks and flat screen televisions, threatening to cut significantly into gross margins.

Analysts interpreted these results to indicate a continuance of an already competitive holiday season, pressuring Best Buy to further lower prices and thus their margins as well.

Shares traded down more than 8% following the report, finishing the week down over 13% from Mondays close.  The stock gapped down to below its 20-day moving average on Tuesday but was able to hold its 50-day MA, an indication that investors may have been willing to step in and support prices at around $41.50.  However, such support proved fleeting, as shares opened below the 50-day MA Friday and closed the week well below the important technical indicator.

At this point, shares are essentially a falling knife, and only the bravest should be willing to step in and try to catch it.  Support exists in the $36 – $38 region, notably including the 200-day MA at a shade under $38.  Until it tests those support levels and holds up, you would be prudent to avoid this one.

Disclosure: No positions in BBY.

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