Guilfoyle: Best Buy Stock Should Be on Hold for Now
Best Buy’s (BBY Get Best Buy Co., Inc. Report second quarter earnings were stellar, but investors should hold off on buying the stock since it has been trading range bound according to one Real Money columnist.
The electronics retailer recently reported comparable sales growth of 20% and operating income growth of 40% compared to last year. Adjusted EPS for the quarter was $2.98, solid for earnings growth of 74%, which beat Wall Street by more than a dollar.
But investors should be cautious since the stock’s “resistance has more or less held firm for a full year,” wrote Stephen "Sarge" Guilfoyle in a recent Real Money Pro column.
Best Buy’s revenue rose by 19.6% annually to $11.85 billion. That was an increase of 24% from two years ago prior to the effects of COVID-19. The company’s same-store sales rose by 19.6% company-wide and by 20.8% domestically. Cash and cash equivalents declined by $1 billion over the past year.
Its balance sheet “is not fortress-like, but is not doubling,” Guilfoyle wrote. “Current liabilities increased slightly and are being outpaced by current assets. Long-term debt doubled in a year, but is still not at frightening levels,” he wrote.
The problem lies in the stock since resistance has nearly held firm for a full year.
“Then, we see all the way back in July of 2020 that there is another still unfilled gap,” Guilfoyle wrote. “I know gaps do not necessarily always fill, but they usually do. My opinion? Just for me...buying Best Buy this close to long-term resistance with two unfilled gaps to the south might be unwise.”
Since spiking immediately after the earnings report, Best Buy shares have indeed fallen back to the levels they held just before the release.
