Tuesday, November 6, 2012

Best Buy Shares Dropped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of electronics retailer Best Buy (NYSE: BBY  ) plunged 11% on Tuesday after its quarterly results disappointed Wall Street.

So what: Best Buy sales have been helped recently by bargain-hungry shoppers, but today's results -- third-quarter earnings fell 29% -- show just how badly those discounts are eating into profits. Management is naturally doing its best to compete against fierce online foe Amazon (Nasdaq: AMZN  ) , as well as big-box discounters Wal-Mart (NYSE: WMT  ) and Target (NYSE: TGT  ) , but the trend of shrinking margins is triggering concerns over its long-term profitability.

Now what: I wouldn't be so quick to pounce on today's plunge. Management did reiterate its full-year EPS guidance of $3.35-$3.65 on revenue of $51 billion to $52.5 billion, but it's obvious that the major competitive challenges facing Best Buy aren't going away anytime soon. With the sluggish economy likely to continue pushing customers toward lower-cost rivals, the shares seem like an easy pass.

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