Is Now The Best Time To Buy Best Buy?
Insiders were selling shares of Best Buy (NASDAQ: BBY) ahead of the Q3 report but the two events are unrelated. The selling, more than 36 transactions over the past 12 months, were made mostly by large shareholders and comprised less than 1.0% of the shares outstanding. There were several transactions by execs as well but nothing large or cause for concern. As it stands, the insiders own less than 0.5% of the shares so they could dump them all and cause only a small amount of damage to the market. More importantly, insider selling has been tapering off over the last quarter and balanced by institutional buying.
Institutional activity has been mixed over the past year but is net-bullish. It is worth noting that institutional selling has been in tandem with rising prices and more indicative of rotation and market health than a weakening outlook. Insidertrades.com indicated institutions own more than 78.5% of the company and their holding are growing. In our view, institutional activity has been underpinning price action and we expect to see it pick up with share prices now in correction.
Best Buy Is Well-Positioned For The Holiday’s
Best Buy reported a fabulous Q3 and upped the guidance for the year but there is a cause for concern. While the guidance for the year is up, the guidance for Q4 is only “meh” and leaves the door open for weaker than expected results. The company delivered $11.91 billion in revenue for the 3rd quarter, up 0.5% from last year’s double-digit increase and 250 basis points better than expected. The gain was driven by strong comps in both the US and Internationally with US comps up and 250 basis points better than consensus and International sales down about half the forecast On an enterprise-wide basis, comps are up 1.6% with eCommerce sales more than double their 2019 level.
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The margin was also good if a little below expectations. The company reported a gross margin of 23.5% which is down a tenth from last year and a tenth shy of consensus. Regardless, both the GAAP and adjusted earnings beat as well due to revenue strength. On a GAAP basis, earnings are up 35% from last year and beat by $0.12 while adjusted earnings are up a smaller 1.0% from last year and beat by $0.11.
Best Buy Falls On Mixed Guidance
Turning to the guidance, the mix of Q4 full-year guidance makes it look like this year’s growth has peaked but we see upside risk in the numbers. The company is exhibiting strong momentum that we see carrying through the holiday season. The $16.4 to $16.9 billion in expected revenue is down from last year and has the analysts consensus at the high-end of the range despite the apparent strength. In our view, revenue should at least be flat on a YOY basis to beat both the guidance and consensus.
“We are looking forward to a strong holiday season and believe we are extremely well-positioned with both the tech customers want and fast and convenient ways to get it,” said Matt Bilunas, Best Buy CFO. “We are committed to driving initiatives that will deliver future growth and our Q4 outlook reflects continued investments in our new membership program, technology, advertising and our health strategy.”
The Technical Outlook: Best Buy Enters Correction
Shares of Best Buy fell more than 10% in the wake of the Q3 earnings and guidance and we think this is setting up a great buying opportunity. Not only is the outlook for revenue and earnings good but the company is an active share-repurchaser and pays a safe and growing 2% yield. Price action may show weakness in the near term but we expect to see support kick in between the $105 and $115 levels, if not higher.
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
