You have to pay attention when an insider loads up on a company. A double take might be in order when that insider has sold more than $2.25 billion, yes with a B, since 2003. It’s even more noteworthy when that insider loaded up once before, and the stock went higher afterwards.
That’s the story with Best Buy Co., Inc. (BBY) and its founder and Chairman Richard Schulze. On May 25th, Chairman Schulze bought 500,000 shares at $79.60 for a total investment of $39.8 million. BBY’s founder had only one other buying spree, buying a little more than $39 million in 2008 for $22 and change. Within nine months, Schulze returned to his normal Best Buy trading, selling starting at $35.06 and he continued to sell, sell, sell all the way to March 14, 2022, at $120.79.
The Chairman’s history is decidedly lopsided towards the sell side, unloading more than $2.25 billion while buying $78.8 million. (1)
Schulze’s most recent buy comes about $10 above the retailer’s 52-week low of $69.07 and after the company lowered guidance for 2023, which is BBY’s current fiscal year.
Chief Financial Officer (CFO) Matt Bilunas told investors and analysts during the most recent earnings’ conference call, “sales came in a little lower than our expectations for the first quarter, and this trend has continued into the second quarter. It is difficult to assess how much of the decline may be a longer tail associated with elevated stimulus spending last year, or overall consumer spending slowing down due to inflationary concerns and the shift of consumer spending to experiences. Based on the trends we are seeing over the past several weeks, we now feel it is more likely that we will be on the lower end of our original guidance expectations.”
Chief Executive Officer (CEO) Corie Barry added, “we are revising our guidance and now expect fiscal ’23 comparable sales decline in the range of 3% to 6%.” (2) Wall Street’s current consensus for BBY’s fiscal 2023 revenue forecasts a 5.2% decline. (3)
You might be wondering why in the world would anybody invest more than $38 million following that news. Well, we see two primary reasons.
First, analysts believe Best Buy will bounce back next year. Sales are expected to rise modestly, up 2.8% to $50.42 billion next year from $49.06 billion this year. Earnings Per Share (EPS) are expected to take a much bigger step forward. This year’s consensus estimate is $8.58 and is predicted to leap to $9.94 next year, a 15.85% increase.
In the last five years, Best Buy’s average Price to Earnings (P/E) ratio was 13.21 with a low of 8.77. If BBY hits The Street’s 2024 estimate and trades with its average P/E, the stock would price out at $136.87. At its low price to earnings valuation of 8.77, BBY would trade at $87.17. Meanwhile, analysts have a 12-month price target of $94.71. (4) As we type, BBY is $79.27.
Secondly, Best Buy has a current dividend yield of 4.38%. The last and only time in the last five years BBY’s dividend yield topped 4% was during the Covid 19 crash in April 2020. The elevated yield didn’t last long.
Overall: Best Buy Co., Inc. (BBY) appears to offer investors strong risk-to-reward potential based on 2024’s consensus earning forecast and recent price to earnings history. That doesn’t include a robust 4.38% current dividend yield. Although a dividend cut is possible if business conditions deteriorate, BBY management has steadily increased its dividend since 2004. (5)
BBY is appropriate for investors with above-average risk tolerance and with at least an 18-month time horizon.
1 – https://www.secform4.com/insider-trading/1006394.htm
2 – https://www.fool.com/earnings/call-transcripts/2022/05/24/best-buy-bby-q1-2022-earnings-call-transcript/
3 – https://finance.yahoo.com/quote/BBY/analysis?p=BBY
4 – https://finance.yahoo.com/quote/BBY?p=BB
5 – https://investors.bestbuy.com/investor-relations/stock-info/dividends-and-splits/default.aspx