The Real Deal on Wall Street: Best Buy Sings the Blues

The market is finding solace in the fact that Best Buy did not lower its earnings guidance despite consumers basically navigating a single part of the store this holiday season, the mobile section that resembles a juice bar. But, ironically, hammering into the ground Best Buy’s holiday story is not what I had in mind today for “The Real Deal on Wall Street” column. Instead, I would like to highlight the lowlight analysis I am finding on the company in the blogosphere (people read these things and make investment decisions off of them lo and behold, not knowing if a writer is talking their book…or if he/she is just a writer spinning a story).

I like to consider myself a financial markets, stock market truth teller. Through the many years of being in the biz, I have developed a passion, or a hard edge as my friends often tell me, in calling things out that are not up to snuff in the financial community. Late, well after the fact analyst downgrades or upgrades get me hot under the collar (which is no good ‘cause I have a couple of nice shirts). The use of clubby financial lingo, though I can talk it with the best of them, is something I detest as it gives a middle finger to the average investor at home that needs and deserves help and guidance. But, what ultimately gets this fella riled up is analysis in the blogosphere that is blatantly missing the point.

The advances in technology has opened an entire world of alleged market pros, each having a slick icon (oddly though, no face) that is supposed to be a badge of honor of sorts. To the home gamer trying to make sense of the mounds of information they are being hit with daily, to gain access to a blog post that is fundamentally flawed from the start but finds itself in agreement with one’s own views could be quite mentally stimulating. I caution though, be mindful who is writing the material; what are their motives, what is their track record, and honestly who the heck are they to begin with (do you want to buy shares in General Electric from a person sitting in their parent’s basement with no formal investment training or a proven expert?). If you don’t run through this mental checklist, following advice like I found in a recent post for Best Buy could bring pain to the ‘ole portfolio…

Blog Comment #1: “Market share fluctuates, and while no management team or investor likes to see any decline, in the case of Best Buy, a 1.1% drop in market share has more to do with the weak product cycle in electronics, the economic environment and the natural business cycle. Companies, like the economy as a whole, face headwinds and tailwinds, uphill and downhill (sometimes flat).”

The Real Deal: Aside from not knowing if that last sentence makes any sense (I know it does because I live the world of Wall Street…but come on, why must investment “gurus” talk in riddles?), the first part of the analysis is seriously flawed. Best Buy has lost share because how people consume electronics has changed. That’s the cut and dry explanation. When Apple begins pumping out televisions, if it does decide to sell them at Best Buy, I bet consumers would still flock to online outlets first to consume the new Apple product (ever see a line at a Best Buy for the release of Apple products…I bet you have seen them constantly at an Apple store).

Blog Comment #2: “Any investor who gets nervous because a company missed "analyst" (I use the term loosely) estimates, needs to rethink being an investor in equities.”

The Real Deal: I will be the first to admit that analysts are wrong just as much as they are correct. However, if a company misses earnings estimates it’s a sign to investors that the fundamentals of the company may be in trouble. One doesn’t have to place all of their faith in analyst estimates, but the direction of those estimates and how the market interprets performance relative to them is important to follow.

Blog Comment #3: “The best thing about Best Buy that investors should take note of is that it is a cash cow.”

The Real Deal: Perhaps for now. Investing though is about looking forward. Best Buy is likely to be doing far less mooing in the future given the aforementioned consumption upheaval and lower margin items running through its doors.

Blog Comment #4: “Also, management has been putting that cash to good use, buying back shares.”

The Real Deal: I will refrain from really being blunt, momma said to keep quiet if I don’t have anything nice to say. Best Buy’s stock is down 34% in the past 52-weeks…I won’t go back and compare the stock price to five years ago. So the buyback plan has been a monumental misuse of shareholder funds.