Could Best Buy’s Stock Rise Over 25% Post Covid-19 Crisis?

Comparing the trend in Best Buy‘s (NYSE: BBY) stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially gain 25% once fears surrounding the coronavirus outbreak subside, potentially underperforming the broader S&P index. Our conclusion is based on our detailed comparison of Best Buy’s performance against the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Best Buy’s Stock Fare Compared With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. Between January 31st and March 25, BBY stock has lost 28% of its value (vs. about 26% decline in the S&P 500). A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia.

Best Buy’s Stock Has Fallen Considerably Because The Situation On The Ground Has Changed

The outbreak of coronavirus has had a negative effect on Best Buy’s inventory, as it is heavily dependent on China for its production. The factory shutdowns and delays from China led the company’s stock to fall lower in recent times. However, Best Buy’s stock price has gained 20% in the last 2 days (March 24 -25) as the company has seen a surge in its sales. Most of the people are transitioning to working from home using workspaces that are often far less equipped than the typical offices. This led to growth in sales of products such as batteries, PCs, laptops, LCDs, printers, and Apple adapters. In fact, consumers under lock-down conditions are also buying Refrigerators and Freezers for stocking up food in large quantities.

Nonetheless, headwinds from delay in anticipated new products (mobile phones, 5G), continued supply chain disruptions from China, and the expanded Covid-19 outbreak in the U.S. could outweigh the company’s near-term benefits.

We believe Best Buy’s Q1 and Q2 results will confirm this reality with a drop in domestic revenues. If signs of coronavirus containment aren’t clear by the May Q1 earnings timeframe, it’s likely Best Buy’s stock, along with the broader market, is going to see a continued drop when results confirm palpable reality.

But Best Buy’s Stock Witnessed Something Similar During The 2008 Downturn

We see BBY stock declined from levels of around $34 in October 2007 (the pre-crisis peak) to roughly $21 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 37% of its value from its approximate pre-crisis peak. This marked a lower drop than the broader S&P, which fell by about 51%.

However, BBY stock partially recovered post the 2008 crisis, to levels of about $29 in early 2010, rising by 39% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will Best Buy’s Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that BBY stock has fallen by 28% this time around compared to the 37% decline during the 2008 recession, we believe it can potentially recover by 25% to levels of around $75 once economic conditions begin to show signs of improving. This marks a partial recovery back to the $87 level BBY stock was at before the coronavirus outbreak gained global momentum. 

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture and complements our analyses of Coronavirus impact on a diverse set of Best Buy’s peers – competitor Walmart. The complete set of coronavirus impact and timing analyses is available here.

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