Best Buy Co., Inc. (BBY) shares fell more than 4% on Thursday morning even though the electronics retailer posted better-than-expected first quarter financial results. Revenue rose 0.3% to $9.14 billion, which was in line with consensus estimates, while non-GAAP earnings per share (EPS) came in at $1.02, which beat consensus estimates by a robust 15 cents per share.
During the company's earnings conference call, management said that many vendors are willing to absorb tariff costs at 10% but that consumers will begin to be affected with price increases at a 25% tariff rate. The escalating trade war could have a significant adverse impact on Best Buy stock given that nearly 70% of its merchandise comes from China.
The trade war with China appeared to escalate on Thursday after President Trump threatened to impose a 25% tariff on all remaining imports from the world's second largest economy. For companies like Best Buy, the move could increase prices for products, while an expected drop in GDP growth could slow the wider economy and consumer demand for electronics.
From a technical standpoint, the stock broke down from trendline support at around $66.40 and could close the gap from Feb. 27 to around $60.00. The relative strength index (RSI) fell to oversold levels of 30.85, while the moving average convergence divergence (MACD) extended its bearish move lower. These indicators point to the possibility of near-term consolidation before a continued move lower.
Traders should watch for some near-term consolidation below trendline support-turned-resistance at around $66.40 over the coming sessions. If the stock continues lower, it could close the gap from Feb. 27 by moving to $60.00 levels. If the stock breaks back above trendline resistance, traders could see a move to test reaction highs at around $70.00, although that scenario appears less likely given the bearish sentiment.
The author holds no position in the stock(s) mentioned except through passively managed index funds.