Can Best Buy Continue This Explosive Run?

With shares of Best Buy (NYSE:BBY) trading around $33, 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 Tuesday delivered earnings and revenue numbers that beat Wall Street’s expectations. Electronic products hold the interest of consumers and companies worldwide and will continue to do so. As economies around the world develop, Best Buy is poised to provide the products and services consumers demand. However, in order for Best Buy to see huge success, it must be able to successfully compete against its online competitors.

T = Technicals on the Stock Chart Are Strong

Best Buy stock has been flying higher in the past year. The stock is now trading at prices not seen in the last three years. 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 above its rising key averages, which signals neutral to bullish price action in the near term.

BBY

Source: Thinkorswim

Taking a look at the implied volatility 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

37.66%

3%

0%

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

Put IV Skew

Call IV Skew

September Options

Flat

Average

October Options

Flat

Average

As of Tuesday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

E = Earnings Are Increasing 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?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

23.08%

95.11%

-107.14%

-91.49%

Revenue Growth (Y-O-Y)

-11.82%

-19.21%

-5.23%

-3.59%

Earnings Reaction

11.81%*

-4.36%

4.57%

-13.01%

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

* As of this writing.

P = Excellent 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

184.00%

15.04%

-5.27%

7.53%

13.81%

Best Buy has been a relative performance leader, year to date.

Conclusion

Best Buy is a provider of electronics and related products and services to consumers and growing companies worldwide. The company recently reported earnings that have investors really upbeat. The stock has been surging higher in recent years and is now trading at prices not seen in three years. Over the last four quarters, earnings have been mixed while revenues have been declining. which has produced mixed feelings among investors in the company. Relative to its peers and sector, Best Buy has been a year-to-date performance leader. Look for Best Buy to continue to OUTPERFORM.

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