Best Buy Co Inc (NYQ:BBY) cover image
29 Reads (2 mins read)

Why quality and value could drive the Best Buy Co Inc share price higher

Fri 12:27pm by Ben Hobson

Quality and value are two of the most important drivers of stock market returns - yet many investors fail to take them seriously. At a time of deep economic uncertainty, using these two powerful factors to find stocks could help you navigate market volatility.

The Best Buy Co Inc share price has moved by -13.6% over the past three months and it’s currently trading at 77.98. But what's interesting about this share is its strong exposure to those all-important profit drivers of high quality and a relatively cheap valuation.

This matter because at a time when many investors are on the lookout for cheap shares, it's essential to know the difference between a genuine bargain and a value trap. The secret is that it's often the quality of the stock that makes all the difference.

Here's where that difference shows up:

GET MORE DATA-DRIVEN INSIGHTS INTO NYQ:BBY »

Quality you can depend on

Good quality stocks are loved by the market because they're more likely to be solid, dependable businesses. Profitability is important, but so is the firm's financial strength. A track record of improving finances is essential.

One of the stand out quality metrics for Best Buy Co Inc is that it passes 5 of the 9 financial tests in the Piotroski F-Score. The F-Score is a world-class accounting-based checklist for finding stocks with an improving financial health trend. A good F-Score suggests that the company has strong signs of quality.

Buying at a fair price

While quality is important, no-one wants to overpay for a stock, so an appealing valuation is vital too. With a weaker economy, earnings forecasts are unclear right across the market. But there are some valuation measures that can help, and one of them is the Earnings Yield.

Earnings Yield compares a company's profit with its market valuation (worked out by dividing its operating profit by its enterprise value). It gives you a total value of the stock (including its cash and debt), which makes it easier to compare different stocks. As a percentage, the higher the Earnings Yield, the better value the share.

A rule of thumb for a reasonable Earnings Yield might be 5%, and the Earnings Yield for Best Buy Co Inc is currently 10.2%.

In summary, good quality and relatively cheap valuations are pointers to those stocks that are some of the most appealing to contrarian value investors. It's among these shares that genuine mis-pricing can be found. Once the market recognises that these quality firms are on sale, those prices often rebound.

Find the strongest shares in the stock market

Finding good quality stocks at attractive prices is a strategy used by some of the world's most successful investors. If you want to find more shares that meet these rules, you can see a comprehensive list on Stockopedia's StockRanks page.

Share this article
As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.
Share Price
$79.08
Change Today
-0.49%
Best Buy Co Inc ( )

Stockopedia is here to help individual investors beat the markets by being the very best in stock analysis, research & community. Take a 30 day free trial of our extensive multi-award winning service and find out why more than ten thousand global investors can't live without it.

© Stockopedia 2020, Refinitiv, Share Data Services.
This site cannot substitute for professional investment advice or independent factual verification. To use it, you must accept our Terms of Use, Privacy and Disclaimer policies.