Best Buy (NYSE:BBY) appears to be undervalued given expected future earnings, but it's not time to declare it the winner among electronics retailers just yet. First, we'll compare Best Buy's cash management with major competitors RadioShack (NYSE:RSH), HH Gregg (NYSE:HGG) and Conn's (Nasdaq:CONN) as well as (Nasdaq:AMZN) and Wal-Mart (NYSE:WMT). If its cash flow and balance sheet stack up against those of the competition, I'll gladly crown it cash management champion. (To read the original articles, please refer to Best Buy: Still The Best Electronics Retailer?)
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Average Cash Return On Invested Capital (CROIC) - Last Three Fiscal Years

Company Market Cap

Average CROIC

Best Buy (NYSE:BBY) $15.9 Billion 14.2%
Radio Shack (NYSE:RSH) $2.5 Billion 19.7%
HH Gregg (NYSE:HGG) $786.8 Million 11.8%
Conn\'s (Nasdaq:CONN) $142.6 Million -6.6% (Nasdaq:AMZN) $54.8 Billion 35.8%
Wal-Mart (NYSE:WMT) $201.6 Billion 6.8%

Radio Shack Lives
It's hard to believe that Radio Shack is still around but it is and if its average cash return on invested capital is any indication, it will be around for many years to come. The Shack, as the company's branding itself in ads these days, actually had a higher return than Best Buy in each of the last three fiscal years. That's difficult to comprehend until you consider the two chains' sizes, or more precisely, the difference in their sizes. Radio Shack's total revenues in fiscal 2008 (December year-end) were $4.22 billion, less than a one-tenth of Best Buy's $45.02 billion in its latest fiscal year ended February 28, 2009. Best Buy's operating margin on those sales is 4.2% versus 7.6% for Radio Shack. While Best Buy's shares are currently trading at a reasonable 14.5 times earnings, Radio Shack's trade at a downright bargain of 13 times earnings. Most importantly, Radio Shack's net current asset value per share is $9.95, whereas Best Buy's is $0.8057 per share. Essentially, Radio Shack appears to be a safer company in terms of current per share liquidity requirements.

Biggest Disappointment
The hardest thing for long-time Best Buy to accept should be the way management has handled its cash in the past two fiscal years. Two events specifically call into question the timing of management's actions. First, it repurchased 9.8 million shares in fiscal 2008 at a price of around $47 per share for a total of $461 million. I have nothing against share repurchases, but when a company seriously overpays - the shares have since fallen by approximately 12% - I have to wonder how well served shareholders are by such a move, especially when you consider that the company could have purchased those same shares for significantly less by waiting a couple of years. Best Buy's stock was trading close to its all-time high for most of 2007 shortly before the repurchases took place. Surely dividend payments made more sense given its valuation.

Bottom Line
Not only am I unconvinced that Best Buy knows what it's doing from a cash flow point of view, but also that it stands a clear second to its once-cheesy rival in terms of investment potential. Radio Shack is the undervalued electronics retail stock in my opinion. Investors should take a closer look. (To learn about how the value of a company can differ from the value of its pieces, check out Use Breakup Value to Find Undervalued Companies.)

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