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Best Buy (BBY) Hits Fresh High: Is There Still Room to Run?

Best Buy (BBY) is at a 52-week high, but can investors hope for more gains in the future? We take a look at the company's fundamentals for clues.

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This story originally appeared on Zacks

Shares of Best Buy Co. (BBY) have been strong performers lately, with the stock up 15% over the past month. The stock hit a new 52-week high of $137.57 in the previous session. Best Buy Co. has gained 36.4% since the start of the year compared to the -2.5% move for the Zacks Retail-Wholesale sector and the 71.5% return for the Zacks Retail - Consumer Electronics industry.

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What's Driving the Outperformance?

The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on August 24, 2021, Best Buy reported EPS of $2.98 versus consensus estimate of $1.91 while it beat the consensus revenue estimate by 2.15%.

For the current fiscal year, Best Buy is expected to post earnings of $10.03 per share on $52.02 billion in revenues. This represents a 26.93% change in EPS on a 10.06% change in revenues. For the next fiscal year, the company is expected to earn $9.54 per share on $50.91 billion in revenues. This represents a year-over-year change of -4.93% and -2.13%, respectively.

Valuation Metrics

Best Buy may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.

On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

Best Buy has a Value Score of A. The stock's Growth and Momentum Scores are A and D, respectively, giving the company a VGM Score of A.

In terms of its value breakdown, the stock currently trades at 13.6X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 12.1X versus its peer group's average of 14.3X. Additionally, the stock has a PEG ratio of 1.79. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Best Buy currently has a Zacks Rank of #2 (Buy) thanks to favorable earnings estimate revisions from covering analysts.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Best Buy fits the bill. Thus, it seems as though Best Buy shares could have a bit more room to run in the near term.



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