Shares in electronics retailer Best Buy (NYSE:BBY) jumped 5% this week on news that its founder Robert Schulze is looking to buy out the company he founded. Schulze already owns about 20% of the company's shares. Earlier this month, Schulze resigned from Best Buy as its chairman of the board.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

A Surprise Move
Schulze's news came as a surprise to investors. When Schulze resigned, analysts suggested that he would be looking to unload his block of shares to a potential buyer, perhaps even a private equity firm. Indeed, the only news is that he is exploring options regarding his 20% stake. Therefore, in the end, a sale of that stake may be what happens. However, Mr. Schulze may have other plans for the company that he founded. Regardless of what those plans may be, Best Buy is no longer operating in the same environment as it once did. Shares are currently trading for $20, down over 40% from where they were a year ago. Once viewed as the dominant big-box electronics retailer that was responsible for the demise of Circuit City, Best Buy finds itself now competing in a different world.

Going Online
While demand for electronics remains robust, consumer preferences have changed dramatically. Best Buy has become a physical catalog as people visit the store to examine the product only to turn around and purchase it for less money online.

Furthermore, online retailing giants like Amazon (Nasdaq:AMZN) can carry a lot more inventory at a fraction of the cost. If that weren't enough, today's hottest selling electronics are small handheld items like smartphones and tablet computers. Those products require very little shelf space, which further destroys Best Buy's big-box concept. In 2010, Apple's (Nasdaq:AAPL) retail stores generated over $5,000 per square foot, while Best Buy generated around $830 per square foot. Today, that gap has likely grown wider and more profitable for Apple, and more painful for Best Buy.

The Bottom Line
Going forward, regardless of whether the company is sold, bought out or stays public, Best Buy can no longer operate the same way. Amazon changed how consumers buy books and that has all but eliminated traditional bookstores. Netflix (Nasdaq:NFLX) led to the bankruptcy of Blockbuster video. Best Buy doesn't have to turn out like Blockbuster, but the company will have to adapt sooner rather than later.

At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  4. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  5. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  6. Stock Analysis

    The Top 5 Micro Cap Alternative Energy Stocks for 2016 (AMSC, SLTD)

    Follow a cautious approach when purchasing micro-cap stocks in the alternative energy sector. Learn about five alternative energy micro-caps worth considering.
  7. Stock Analysis

    Analyzing Porter's Five Forces on Under Armour (UA)

    Learn about Under Armour and how it differentiates itself in the competitive athletic apparel industry in light of the Porter's Five Forces Model.
  8. Stock Analysis

    The Biggest Risks of Investing in Qualcomm Stock (QCOM, BRCM)

    Understand the long-term fundamental risks related to investing in Qualcomm stock, and how financial ratios also play into the investment consideration.
  9. Stock Analysis

    The Biggest Risks of Investing in Johnson & Johnson Stock (JNJ)

    Learn the largest risks to investing in Johnson & Johnson through fundamental analysis and other potential risks. Also discover how JNJ compares to its peers.
  10. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
RELATED FAQS
  1. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  2. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  3. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  4. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  5. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
  6. What is the formula for calculating earnings per share (EPS)?

    Earnings per share (EPS) is the portion of a company’s profit that is allocated to each outstanding share of common stock, ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center