With shares of Best Buy (NYSE:BBY) trading at around $12.05, is BBY an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Imagine being trapped in the backwoods by a forest fire. There’s nothing you can do to stop this fire from spreading. You’re only hope for rescue (see Richard Schulze) is dimming. You could have been rescued earlier, but you let the opportunity slip away. Now you’re famished and praying for a miracle. If you haven’t owned Best Buy’s stock recently, you now have an idea of what it has felt like.

It is often said that a picture speaks a thousand words. While this statement is a bit of an exaggeration, looking at Best Buy’s max chart tells the typical rise and fall story. If you’re buying now, then you’re likely buying purely on hope. We will look at several troubling indicators, but perhaps what is most important is that this stock has performed poorly in a strong market. This is never a good sign. Of course, the major issue is having to compete with the likes of Amazon (NASDAQ:AMZN) and Wal-Mart (NYSE:WMT). To give you some perspective of this lofty task, if this were a football game, Best Buy would be a 50-point underdog in either matchup.

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For Best Buy, same-store sales have dropped for eight consecutive quarters, their profit margin is now in negative territory, and the days of people rushing to buy flat-screen TVs are over. However, amazingly, it’s not all bad news for Best Buy. Don’t get too excited, though. Most of it is still bad news.

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Best Buy is normal. There is a little room for improvement, but it’s not a number that should create any concern at the moment. The balance sheet, on the other hand, could use a little help.

 

Debt-To-Equity

Cash

Long-Term Debt

BBY

.49

$309 Million

$2.01 Billion

AMZN

.35

$5.25 Billion

$2.68 Billion

WMT

.73

$8.64 Billion

$57.13 Billion

 

T = Technicals on the Stock Chart Are Weak

Investors in Best Buy over the past three years might have spent portions of their days banging their heads against a cement wall.

 

1 Month

Year-To-Date

1 Year

3 Year

BBY

-11.14%

-46.40%

-45.61%

-68.36%

AMZN

10.64%

43.96%

37.48%

94.13%

WMT

1.62%

17.88%

20.89%

38.85%

 

At $12.05, Best Buy is currently trading below all its averages.

50-Day SMA

14.92

100-Day SMA

16.56

200-Day SMA

19.01

 

E = Earnings Have Dropped, But Revenue Has Increased

It comes as a shock to many people that revenue for Best Buy has actually increased on an annual basis (for the most part.) However, you will notice a significant slowdown in the pace of that growth. Earnings have dropped considerably.

 

2008

2009

2010

2011

2012

Revenue ($)in billions

40.02

45.02

49.24

49.75

50.70

Diluted EPS ($)

3.12

2.39

3.10

3.08

-3.36

 

Looking at the last quarter on a YoY basis, we see a decrease in both revenue and earnings.

 

11/2011

2/2012

4/2012

7/2012

10/2012

Revenue ($)in billions

12.10

16.32

11.61

10.55

10.75

Diluted EPS ($)

.42

-4.70

.46

.04

-.03

 

T = Trends Support the Industry, But Not the Company

When it comes to electronics, Amazon and Wal-Mart rule the day. Companies like Best Buy and Radio Shack (NYSE:RSH) are dying breeds. Longs will argue this until a zero bid, but that’s understandable. At least in Best Buy’s case, there is a potential hero – the aforementioned Richard Schulze.

Conclusion

There was an earlier mention of a few positives. We certainly haven’t seen them yet, but they do exist. Best Buy has a Forward P/E of 5.65, an operating cash flow of $3.29 billion, and a short position over 15 percent. The reason the short position is listed as a positive is because it could lead to a short squeeze if good news surprises the market. However, investing in companies in hopes of an acquisition or short squeeze isn’t a profitable strategy.

In addition to poor growth and earnings, Best Buy also suffers from a bad image, and on Wall Street, perception is everything.

Based on all factors covered above, Best Buy is a STAY AWAY.

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