Best Buy (BBY) is a Buy at Support
Best Buy Co., Inc. (NYSE:BBY) shares fell sharply despite beating earnings estimates, as the big-box retailer warned that deep discounts holiday promotions would put pressure on its fourth-quarter margins. Shares of BBY are still up 227% even after the big pullback after earnings. Is this the time to step in and buy shares of BBY?
Best Buy is working deals with Samsung and Microsoft Corporation (NASDAQ:MSFT) to open store-in-store kiosks, and implementing a new training program to help employees to provide better service. The company continues to benefit from cost cutting, which it announced Last November, saying cuts of $400 million on selling, general and administrative expenses, and $325 million on costs of goods sold.
Kiosk deals with Microsoft and Samsung are in place to help with deal with showrooming, which is where customers view products in stores but buy them cheaper online at sites like Amazon.com. Online sales were up last quarter by 15%, thanks to an updated website with the addition of customer reviews. Best Buy also has begun to fulfill online orders using inventory from stores. Best Buy’s stock has easily outperformed its competitors this year. Right now, based on the BBY real-time trading report published by Stock Traders Daily, BBY is testing long-term support after the post-earnings decline.
Competing on price with competitors like Target Corporation (NYSE:TGT) , Wal-Mart Stores, Inc. (NYSE:WMT) Amazon.com, Inc. (NASDAQ:AMZN) will be a major challenge this holiday season. Competitors decisions to open early for Black Friday, where stores will be open at 6:00 pm on Thanksgiving Day and not closing until late evening on Black Friday, must be matched.
The gap between Best Buy and Amazon on TVs narrowed to 2%, the smallest gap in over a year. This development is very important, as the company needs to match Amazon on price and stem the tide of share loss, albeit at a lower gross margin. Best Buy has further cost cutting opportunities to offset the lower gross margins to drive EPS gains going forward. More competitive pricing, helps to reduce showrooming at the retail level, and combined with more efficient supply chain management, helps BBY take share online as well
The company said in the most recent conference call, that if competition is in fact more promotional in the fourth quarter, it will be too and that will have a negative impact on the gross margin. Investors will have to determine if that news is already built into the stock price, and if cost-cutting strategies coupled with in store kiosks will be enough to offset reduced margins. Smart money will be watching the price of the stock now, as the most of the market moving fundamental news is already out.
Price is what makes us money, based on the Stock Traders Daily real-time trading report, BBY is testing long-term support, and according to the rules that govern our strategies, we are buyers near support. If support holds, we would expect shares to move higher and eventually test resistance. We would only be buyers near support, and use that support level to set our stop loss.
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