Yahoo Finance Best Buy Co Stock Is Believed To Be Modestly Overvalued
- By GF Value
The stock of Best Buy Co (NYSE:BBY, 30-year Financials) appears to be modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $116.15 per share and the market cap of $29.1 billion, Best Buy Co stock gives every indication of being modestly overvalued. GF Value for Best Buy Co is shown in the chart below.
Because Best Buy Co is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 9.4% over the past three years and is estimated to grow 0.61% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Best Buy Co has a cash-to-debt ratio of 1.38, which which ranks better than 70% of the companies in the industry of Retail - Cyclical. The overall financial strength of Best Buy Co is 6 out of 10, which indicates that the financial strength of Best Buy Co is fair. This is the debt and cash of Best Buy Co over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Best Buy Co has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $47.3 billion and earnings of $6.84 a share. Its operating margin is 5.60%, which ranks in the middle range of the companies in the industry of Retail - Cyclical. Overall, the profitability of Best Buy Co is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Best Buy Co over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Best Buy Co is 9.4%, which ranks better than 77% of the companies in the industry of Retail - Cyclical. The 3-year average EBITDA growth is 14%, which ranks in the middle range of the companies in the industry of Retail - Cyclical.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Best Buy Co's ROIC is 21.40 while its WACC came in at 10.05. The historical ROIC vs WACC comparison of Best Buy Co is shown below:
In conclusion, The stock of Best Buy Co (NYSE:BBY, 30-year Financials) appears to be modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Retail - Cyclical. To learn more about Best Buy Co stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
