Is Best Buy a Best Buy Today?

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There's a good side to every story, along with the inevitable bad and ugly ones. As we turn a new calendar leaf into 2012, it's time to look at retail giant Best Buy (NYS: BBY) to see which of the three competing stories has the most convincing plot.

Is this the time to buy, sell, or hold Best Buy shares?

Buy:

  • It's cheap: The electronics retailer trades for just over 8 times trailing earnings. That level is totally unheard of except during the very darkest days of the Lehman-sparked economic crisis:
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Best Buy Stock Chart by YCharts

  • There's a plan: Management kicked off a heavy restructuring effort in November. The new Best Buy leans more on small-format mobile phone stores and less on those traditional big-box warehouses. Oh, dear. Did I just give this stock a backhanded compliment in the "buy" section?

Sell:

  • It's that bad: It's not easy to find a point of light in this dark story. Margins and earnings are falling while sales growth is stagnant at best. Copying small-store plays out of the RadioShack (NYS: RSH) playbook doesn't sound like an obvious cure to all these ills, especially considering the stock is one of the biggest retail losers of 2011. Even though RadioShack is now carrying the ever-popular iPhone, it is unseen whether it will ride the record-smashing phone to riches.  
  • The customer is always right: And right now, customers don't have much love for Best Buy. The company failed to deliver many online orders and notified the wronged buyers way too late to make alternative plans. In the retail industry, where you live and die by your reputation, annoying your clients is an unforgivable sin.
  • Stop me if you've heard this one before: Chances are you've seen this story play out already. Last time, it was called Circuit City. In 2007, Best Buy's chief rival cut costs and worsened its in-store experience in one terrible move. Less than two years later, the chain suffered the consequences of its actions. The details may be different this time, but the destination looks familiar.

Hold:

  • It's different this time: If you believe that the smaller store footprints make a difference, and that smartphones or tablets have the power to save this sinking ship, then there's a terrific value on the table. Selling out now would lock in a one-year decline of more than 30%.

The bottom line:
Fellow Fool Rick Munarriz noticed the Circuit City parallels, and Travis Hoium sees a big trap in this would-be value play.

Me, I can't help thinking of Sears Holdings (NAS: SHLD) , another troubled retail giant with more problems than solutions. While Best Buy's decision to close some underperforming U.K. stores may not be as dramatic as Sears' 100-plus domestic store closures, it could be the tip of a Sears-esque iceberg of shuttering windows.  Looking back a bit further, I see the ghost of Montgomery Ward, which went out of business after a few disappointing holiday shopping seasons. Super-efficient stores killed Ward's; e-tailers will destroy Best Buy.

If it weren't obvious already, I recommend dumping Best Buy before it's too late. In fact, I'm betting my CAPS score on it with a thumbs-down CAPScall on Best Buy. Yes, even at this depressed starting price.

"Too big to fail" doesn't hold water in the retail industry. A handful of cash kings are changing everything you know about retail -- learn all about this revolution in a totally free special report by following these links. Where some retailers will get buried, others will rise to the top and reward investors along the way.

At the time this article was published Fool contributorAnders Bylundholds no position in any of the companies mentioned. The Motley Fool owns shares of Best Buy and RadioShack.Motley Fool newsletter serviceshave recommended writing covered calls in Best Buy. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check outAnders' holdings and bio, or follow him onTwitterandGoogle+. We have adisclosure policy.

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