Amazon.com Inc. (AMZN) hasn't finished off Best Buy Co. (BBY) - at least yet. It wasn't long ago that the giant electronics retailer's shares were languishing and left for dead amid the onslaught from Amazon. Best Buy's shares had fallen from more than $50 at the end of 2008 to below $12 in January of 2013.

Today, Best Buy investors received a temporary respite from that gloomy news as fiscal first quarter earnings and revenue beat estimates and as its shares surged.

BBY Chart

BBY data by YCharts

Of course, Best Buy shares have not performed at even a fraction of what Amazon has done in the past ten years either.  

BBY Chart

BBY data by YCharts

Amazon's stock has been driven by its exponential revenue growth while Best Buy's revenue has languished. 

BBY Chart

BBY data by YCharts

Strong Mobile, Gaming Sales

But the story is dramatically different - at least for today. Its shares surged by nearly 14 percent to the start the day after beating top and bottom line estimates and providing strong guidance for the second quarter and fiscal year. For the first quarter of fiscal 2018 ended April 29, the company reported revenue of $8.528 billion, easily beating analysts' estimates of $8.227 billion. The company also saw Non-GAAP diluted EPS of $0.60, again easily beating estimates of $0.40.

The company noted the beat was driven by growth in the online channel, with comparable sales surging 22.5 percent. The company saw strong performance in gaming, and better-than-expected results in mobile, the company also noted it got a bump from federal tax refund checks. 

For fiscal second quarter, the company is guiding revenue to a range of $8.6 billion from $8.7 billion, or $8.65 billion at the mid-point. Analysts had been looking at $8.48 billion in the second quarter. The company is also guiding Non-GAAP diluted EPS of $0.57 to $0.62, or $0.60 at the mid-point. Analyst had been looking for the company to guide to $0.60, in-line with estimates. 

Muted Revenue Outlook

For full-year 2018 the company is guiding for revenue growth of approximately 2.5 percent. In fiscal 2017 the company reported revenue of $39.40 billion, so growth of 2.5 percent would put revenue at approximately at $40.39 billion. Analysts had been looking for only $39.49 billion. 

Perhaps Best Buy has found a market segment that is just big enough for them to have that niche to keep fighting another day. The company trades at a reasonable valuation, at least on the surface.

BBY PE Ratio (Forward 1y) Chart

BBY PE Ratio (Forward 1y) data by YCharts

However, Best Buy is not a company that's expected to grow revenue meaningfully over the next few years. Yes, today's results will likely push analysts to raise revenue estimates slightly. Likely not enough to make a meaningful impact since this a company that's projecting modest revenue growth for this year.

BBY Revenue Estimates for Next Fiscal Year Chart

BBY Revenue Estimates for Next Fiscal Year data by YCharts

After all, analysts only expect EPS to grow by 9 percent from $3.93 in 2018 to $4.30 in 2019, which gives the company a PEG Ratio around 1..

On that basis, Best Buy looks slightly expensive. 

Everybody enjoys its 15 minutes in the spotlight, and today that spotlight shines on Best Buy. 

Michael Kramer is the Founder and Portfolio Manager of Mott Capital Management, LLC a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

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