Best Buy's Sharp Share Drop Isn't Over

Best Buy Co. Inc. (NYSE: BBY) has posted better than expected earnings. The reaction was swift and negative. Investors worried that shoppers had done their work early and this would depress sales closer to the holiday. Traders don’t see an improvement, because of Best Buy’s own discouraging signals. The stock is down 14% in the past month, with no sign of recovery.

It must be difficult to run a retailer and face daily comparisons to’s success. However, Amazon controls so much of the e-commerce industry that the search for contacts cannot be avoided. Amazon has performed about the same as the S&P 500 in the past month, a gain of about 2%.

Best Buy’s most difficult headwind recently came with a Sell rating from Goldman Sachs analyst Kate McShane. She cut her price target by $10 to $97. Shares currently trade at $102.

The attack on Best Buy’s valuation must have been particularly insulting after Best Buy beat most Wall Street forecasts for its most recently reported quarter. Same-store sales rose 23%. Digital sales were higher by 127%. Revenue jumped 21.4% to $11.9 billion. Earnings of $2.06 per share topped a consensus estimate of $1.70.

Best Buy offered no guidance, citing uncertainty about the economy. It is hard to take issue with management’s decision, but it has proved costly.

Amazon fans believe that the company does not face the pressure Best Buy may. The reason is well over a decade old. Amazon picks up holiday market share year after year. Retailers (Best Buy in particular) get counted as victims. Whatever ground Best Buy gains, it usually gives back when the reality of Amazon’s dominance sets in again.

Best Buy’s stock won’t recover this year. If it does not do better than mediocre expectations for the holidays, that won’t change next year.