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Best Buy Co Inc BBY

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Growth Set to Slow at Best Buy, Though Margins Could Remain Stable; Shares Fairly Valued

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

No-moat Best Buy continued to benefit from high demand for consumer electronic products throughout its fiscal year, which led to comp sales growth of 9.2% (roughly in line with our 9.5% forecast, with full-year comp online sales up 144.4%) and revenue growth of 8.3% (slightly below our 9% projection). Operating margin expanded to 5.1% from 4.6% in 2020, aligning with our expectations. The firm indicated in its third quarter that the 20% sales growth seen earlier in the pandemic was unsustainable, which we agreed with, but we feel that increased operating efficiencies (such as store-level operational changes and a shift to online purchases) still support our medium-term projection of 5%-6% operating margins. Online sales made up 43% of domestic sales this quarter, and we expect online sales to compose about 40% of domestic sales going forward, offering more support to our belief that the above 5% operating margins are sustainable. We don’t plan to substantially alter our $98 per share fair value estimate and view shares as fairly valued after a high-single-digit decline post print.

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Company Profile

Business Description

Best Buy is one of the largest consumer electronics retailers in the U.S., with product and service sales representing more than 9% of the $450 billion-plus in personal consumer electronics and appliances expenditures in 2019 (based on estimates from the U.S. Bureau of Economic Analysis). The company is focused on accelerating online sales growth, improving its multichannel customer experience, developing new in-store and in-home service offerings, optimizing its U.S., Canada, and Mexico retail store square footage, lowering cost of goods sold expenses through supply-chain efficiencies, and reducing selling, general, and administrative costs.

7601 Penn Avenue South
Richfield, MN, 55423
T +1 612 291-1000
Sector Consumer Cyclical
Industry Specialty Retail
Most Recent Earnings Jan 31, 2021
Fiscal Year End Jan 29, 2022
Stock Type Cyclical
Employees 102,000