Best Buy a Buy??

posted by Nima

December 22, 2008 · Posted in Business

Top U.S. electronics retailer Best Buy Co has been gaining market share as rival Circuit City closes stores, and smart cost cutting could keep it shining throughout 2009, Barron’s said in its December 22 edition.

The weekly business newspaper said that while Best Buy shares were off by a third since it ran a bullish story on the company earlier this year, the retailer has been making the most of its rival Circuit City’s woes, after that company filed for bankruptcy.

“While the shares have disappointed us this year, they’re now looking every bit as tempting as a cut-rate iPhone,” the report said.

Best Buy beat expectations in the latest quarter and said it would reduce costs through cuts, and was paring the number of new stores it will open in 2009.

I beg to disagree with Barron’s. What are they thinking? As the business cycle phase 8, the credit crunch, teaches us, US consumer demand will collapse throughout all of 2009. Consumer credit has already peaked. Who is going to buy more plasma screen TVs, HiFi systems, and iPods? How does it help the business that its market share is increasing in a market that is contracting? Best Buy is one of the top businesses in the line of fire of this contraction. Not only is it a retailer, it is a retailer for extra consumer goods which consumers will cut down on sharply for years to come. In Q2 and Q3 Best Buy already reported a negative free cash flow.

Circuit City’s bankruptcy is not a sign that Best Buy’s position will be strengthened. It is rather a harbinger of the fate Best Buy will have to suffer sooner or later.