Over the past month, electronics retailer Best Buy (BBY) stock has seen a significant slide in price. The stock has dropped from $117.50 per shares to about $108 per sharing since August 27th.

Shares have fallen to an already low stock price. The forward price to earnings, or P/E ratio, for the stock is 11.8x at current prices. That said, there’s logic behind this sudden spurt of bearishness when it comes to Best Buy.

There’s big concern that the company’s performance will underwhelm going forward. Investors still don’t understand the transformation of the company into an online and offline retailer. The market was unwilling to assign it a value comparable to its peers.

Nevertheless, I am bullish. The current stock price is more important than its risk. Investors could also change their old perceptions if they see the results of the next quarter.

Shares may experience a price rebound if this occurs. (See BBY stock charts on TipRanks)

Why BBY Stock Has Sold Off

Back in August, strong quarterly results gave shares in Best Buy a boost. Its earnings and sales grew by 7.8% and 19.6% respectively year over year, exceeding expectations.

Even the company’s guidance saw improvement. Prior guidance required it to experience a decline of single digits in sales for the current quarter (ending October 2021). The new guidance calls for sales growth of 3% to 0%. 

BBY shares have fallen since reaching $120 per share after briefly rising above that price, as mentioned above. What is the reason? The overall economic “reopening”  has played a big role in Best Buy’s strong numbers over the past two quarters.

So has the fact that remote working remains widespread, as offices have delayed a full “return to work”  due to the Delta variant outbreak.

Both tailwinds are beginning to fade and so expectations for quarters ahead will be lower. These expectations could be incorrect.

Incorrect Perceptions

Recent concerns have made BBY cheaper. Even at $120 per share it was cheap and had a very low forward PE ratio.

Many still believe, despite its pivot from strictly brick-and-mortar to omnichannel, that the company is still a “dinosaur,” at risk of getting squeezed out by e-commerce plays like Amazon (NASDAQ:).

Investors have expected that the surge in electronic demand will be temporary. This is why Best Buy has traded at a far lower forward multiple than other retailers benefiting from pandemic and post-pandemic tailwinds, like Target (NYSE:).

However, the market might be incorrect in its assessment of Best Buy. Amazon’s competitive advantage was removed by its omnichannel transformation. After offices reopen, remote work may decrease. Rising inflation could make up the difference. 

Analyst Greg Melich from Evercore ISI recently included the stock as one of five retailers that could continue to thrive post-COVID, citing persistent inflation as a factor that will benefit the company’s top-line results.

Wall Street’s Take

According to TipRanks, BBY stock has a consensus rating of Moderate Buy. It has 13 analysts rating it as a Buy. Four rate it Hold while one rate it Sell.

The average BBY price target is $132.91 per share, implying 22.3% upside from today’s prices. The price targets of analysts range from $100 to $157 per share.

Bottom Line

Admittedly, stronger-than-expected results won’t turn this mature company into a growth story.

For the next fiscal year, the top earnings estimate for $10.33 per share is available. This figure is 6.3% below the sell-side consensus for $9.72 per shares for the current fiscal. 

But, reaching high estimates could allow shares to return to previous prices levels. There may be a pathway for BBY stock to eventually reach its average price target. Investors might also re-evaluate their views of the stock.

Disclosure: Thomas Niel didn’t hold any positions in the securities discussed in this article at the time it was published.

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