What Will Best Buy Do Post-Earnings?

With shares of Best Buy (NYSE:BBY) trading around $25, is BBY an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Best Buy is a multinational retailer of consumer electronics, computing and mobile phone products, entertainment products, appliances, and related services. The company operates retail stores and call centers, and conducts online retail operations under a range of brand names like Best Buy, Best Buy Mobile, the Carphone Warehouse, Five Star, Future Shop, Geek Squad, Magnolia Audio Video, Pacific Sales, and the Phone House. Best Buy operates in two segments: domestic and international.

Best Buy on Thursday announced results for the 13-week first quarter ended May 3. Hubert Joly, the company’s president and CEO, said: “This quarter reflects continued progress in our Renew Blue transformation. From a financial perspective, we delivered just over $9 billion in revenue and a better-than-expected $0.33 in non-GAAP diluted earnings per share. As expected, Domestic comparable sales declined 1.3%, in a context where sales in the Consumer Electronics industry continued to decline. Nevertheless, we achieved market share gains in the U.S.3, fueled by our improved price competitiveness and an enhanced customer experience focused on advice, service and convenience. This was evidenced by our 250 basis-point year-over-year improvement in our Net Promoter Score.”

T = Technicals on the Stock Chart Are Mixed

Best Buy stock has been pulling back in recent times. However, the stock is currently surging higher and looks set to continue this path. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Best Buy is trading between its rising key averages, which signals neutral price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Best Buy options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Best Buy options

36.06%

6%

4%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Average

Average

July Options

Average

Average

As of Thursday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Best Buy’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Best Buy look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

3.13%

-15.65%

633.33%

23.08%

Revenue Growth (Y-O-Y)

-3.34%

-3.02%

-0.2%

-11.82%

Earnings Reaction

2.05%*

-0.97%

-10.97%

13.24%

* As of this writing

Best Buy has seen rising earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about Best Buy’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Best Buy stock done relative to its peers – Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), and Wal-Mart (NYSE:WMT) — and sector?

Best Buy

Amazon

Apple

Wal-Mart

Sector

Year-to-Date Return

-35%

-23%

8.05%

-3.99%

-12.48%

Best Buy has been a poor relative performer, year-to-date.

Conclusion

Best Buy is a provider of electronics and related products and services to consumers and growing companies worldwide. The company on Thursday announced results for the first quarter ended May 3. The stock has been pulling back in recent times but is currently surging higher. Over the last four quarters, earnings have been on the rise while revenues have been decreasing, which has left investors with mixed feelings about recent earnings announcements.. Relative to its peers and sector, Best Buy has been a poor year-to-date performer. WAIT AND SEE what Best Buy does this quarter.

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