Best Buy Stock Breaks Out (NYSE: BBY)

With its brick and mortar heavy business, shares of electronics retailer Best Buy (NYSE: BBY) can be forgiven for being a little slower to recover Q1’s losses compared to their e-commerce cousins. The likes of Alibaba (NYSE: BABA), Amazon (NASDAQ: AMZN) and Wayfair (NYSE: W) have all reaped the rewards of being online stores in recent months as COVID-19 has fundamentally shifted consumer shopping and spending habits.

But unlike brick and mortar heavy fashion retailers like Ralph Lauren (NYSE: RL) or Macy’s (NYSE: M) who are languishing at multi year lows, Best Buy has managed to write their own destiny and has recovered all of Q1’s damage. Not only that but with Wednesday’s 8% jump, their stock has punched through to fresh all-time highs. This puts shares up a full 100% from March’s lows and the bulls will be hungry for more.

Best Buy Signals From Management

Wednesday’s gap up and rally through the close came after the company disclosed that their quarter to date sales are up more than 2% year on year with strong demand seen for computers and tablets in particular. With overall sales bucking expectations, what really caught Wall Street’s attention was the jump in online sales which were up 255% year on year. CEO Corie Barry said with the update that “strong consumer demand, combined with shopping experiences that emphasize safety and convenience, has helped produce our sales results to date”.

Even after their stores started to reopen in recent weeks, online sales have remained high which could be indicative of that more permanent consumer shift to online shopping which many are observing.

As part of the update on sales numbers, management also felt confident enough in their current situation to raise the starting hourly wage for employees, something that would have been unthinkable only a few months ago. Let’s not forget, it isn’t that long since there were daily headlines of non-essential businesses shutting down and millions of retail employees being furloughed.

Best Buy themselves had furloughed more than 50,000 of their employees as recently as April, with about half of that number now back at work. This increase in the starting wage is akin to raising a dividend and signals to investors that management is comfortable and confident enough in the company’s long term future to increase expenditure like that.

Wall Street has certainly picked up on the message, with Wednesday becoming one of the stock’s best days in recent years. All eyes will now be on August 25 when the company reports their fiscal Q2 earnings. For now, it looks as if the stock has some catching up to as the internal numbers have clearly been underestimated.

Best Buy Long Term Play

Only last month, Jeffries were out with a list of six companies who they felt had been overlooked and ignored during the sizzling recovery rally but who offered serious long term potential. In a note to clients they said "we looked up and down the market cap for those stocks that lagged in the bear market and have not participated in the upturn ... and could be the next leaders" - one of whom was Best Buy. With many tech stocks starting to look a little frothy, the catch-up potential could be appealing to investors reviewing their portfolio for the rest of the year.

It will be interesting to see how the stock reacts to being in uncharted territory. It was last here in December, after it broke above previous highs, and was making good progress until the COVID-19 pandemic took equity markets down.

But now there’s a triple-digit percentage move after taking shares up there again and you’d have to back them to keep the momentum going into Q3 and beyond. Depending on how August’s earnings report plays out, we could well be seeing a triple-digit stock price for the first time in the near future.