Dan, some additional comments over those to you in the SS thread.
BBY is clearly a busted stock and that usually means that the price fall will be overdone before sanity comes back in. Right now there is a very high negative sentiment against BBY, CPU, and others of this ilk. The institutions and momentium players seem to be bailing. The small investors in thse stocks are likely getting margin calls and/or having sell stops hit. This is also the time every year when the media starts to question how good or bad the all important x-mass season will be. And then, all of the talk going on about P/C sales and prices.
Recent news:
9/9 Fidelity announced an 11% position in BBY, at what price and when did they buy? do they still hold this?
10/10 Goldman lowers rec. from Buy to Accum
10/28 Saloman takes off of rec. list
Comp store sales (I think the most important factor in retailing)
June +7%
July +8%
Aug (3%)
Sept (2%)
The trend here is not good.
Total sales
Q1 (5/30) +28%
Q2 (8/31) +24%
Sept +13%
Ytd through Sept + 23%
Again a bad trend.
EPS
Q1 .01 vs .11
Q2 .09 vs .13
Gross margins look ok, SG+A are up a little.
Zacks est growth rate of 17%
Present P/E is 14-16X
Historical P/E
'95 15-31
'94 14-34
'93 11-31
So, P/E is getting down to its historical low point.
'96 eps. est. 1.28 vs 1.32
'97 1.52
This is a 19% eps increase over the next year vs a growth rate of 17% and a historical P/E average of 22X
So, I'm thinking that the "normalized" P/E should be in a range of 16-20 times '96/'97 average eps of 1.40 giving a price of $22-28. The high over the last year was 26 with a mean of about $18-20.
Last year for the period of 11/1 to Jan the price dropped from 24 down to 12. Since we have already seen a drop from 24 in Sept to 15 now, how big will the additional drop be, if any?
So, what do we have here? A busted stock with bad trends. But, a profitable company that is trading at the low end of its P/E ramge, with a good growth rate and expectations of good increases in eps.
What to do, what to do?
I hate to try to pick a bottom price at which to enter. I usually put in a buy stop to try to get in on a turnaround: but this means I will usually miss the first 5-10% of a price increase. On this one I am afraid of using a buy stop, getting in on a short term up, and then seeing the price fall from there. This could be the bottom or it could be 12 or 10??
A full position on this one would be 1500 -3000 shares. I'm thinking of:
Buy stop - 500 - 16.75
Buy stop - 1000 -17.75
Buy - 500 - 14
Buy - 500 - 12.5
Buy - 1000 - 10.5
This has the potential for a gain of 50% plus over a period of 6-9 months. I usually like to see a short term gain potential of 10-20% over 10 days to 2 months before I enter a position but I don't see that on this one.
So, now that I have dumped my thought process on this one, what do you all have for comments?
Ron
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