Why Best Buy Stock Might Sink Your Portfolio
Saying that Best Buy stock has had an impressive run so far this year is a gross understatement. The stock has gained more than 119% year to date, compared to a return of just 10% for the broader market. However, don't let the stock's rally deceive you into thinking Best Buy's turnaround plans have gotten off without a hitch. Current shareholders of Best Buy stock should be careful, lest the stock come crashing back to reality.
A tight fix
Earlier this week, Best Buy stock hit another 52-week high after the company agreed to sell its 50% stake in Best Buy Europe to its joint venture partner Carphone Warehouse Group. The cash and stock deal is valued at about $775 million. The deal should help fund Best Buy's turnaround effort, though it's still a loss on investment for the company given its original buy-in five years ago for $2.15 billion. Meanwhile, Best Buy faces no shortage of complications back home.
Amazon's low prices, convenient platform, and speedy shipping have made Best Buy's big box retail strategy all but obsolete. In a late bid to counter comparison-shopping, Best Buy started matching online prices. However, showrooming is the least of Best Buy's worries at this point. In addition to online competition, the consumer electronics chain also faces shrinking margins, declining sales, and deteriorating profitability.
Walk the talk
Let's be clear: Best Buy stock is still a hot mess. Only now, the symptoms are masked by the current recovery in its share price. Amazon and other online retailers meanwhile have lower cost structures, which give them an undying competitive edge over Best Buy -- even as the electronics retailer downsizes stores and reduces its workforce.
Fluctuations in Best Buy's stock price have helped mask the underlying dysfunction in this name. To be sure, Best Buy still faces many live-or-die challenges on the road to recovery. Moreover, the increasingly competitive retail landscape is no friend to a company such as Best Buy, which lacks even the slightest moat. Exceeding the market's low expectations may have helped Best Buy stock climb out of the gutter, but the company's future remains far from certain.
Make no mistake, the brick-and-mortar versus e-commerce battle wages on, with Best Buy stock caught in the middle. After what might have been its most tumultuous year in history, there are now even more unanswered questions about the future for the big-box electronics retailer. How will new leadership perform? Will old leadership take the company private? Will a smaller store format work out for both the company and its brave investors? Should you be one such brave investor? To help answer all these questions, The Motley Fool has released a new premium research report detailing the opportunities -- and the risks -- in store for Best Buy. Simply click here now to claim your comprehensive report today.
The article Why Best Buy Stock Might Sink Your Portfolio originally appeared on Fool.com.Fool contributor Tamara Rutter owns shares of Amazon.com. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.