3 Reasons BBY is Risky and 1 Stock to Buy Instead

3 Reasons BBY is Risky and 1 Stock to Buy Instead

Radek Strnad

Tue, February 24, 2026 at 1:07 PM GMT+9 3 min read

In this article:

BBY

-2.75%

^GSPC

-1.04%

Over the past six months, Best Buy’s shares (currently trading at $62.90) have posted a disappointing 15.4% loss, well below the S&P 500’s 7.3% gain. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Best Buy, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think Best Buy Will Underperform?

Even with the cheaper entry price, we’re sitting this one out for now. Here are three reasons we avoid BBY and a stock we’d rather own.

1. Shrinking Same-Store Sales Indicate Waning Demand

Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Best Buy’s demand has been shrinking over the last two years as its same-store sales have averaged 1.5% annual declines.

Best Buy Same-Store Sales Growth

2. Low Gross Margin Reveals Weak Structural Profitability

We prefer higher gross margins because they not only make it easier to generate more operating profits but also indicate product differentiation, negotiating leverage, and pricing power.

Best Buy has bad unit economics for a retailer, signaling it operates in a competitive market and lacks pricing power because its inventory is sold in many places. As you can see below, it averaged a 22.5% gross margin over the last two years. Said differently, Best Buy had to pay a chunky $77.54 to its suppliers for every $100 in revenue.

Best Buy Trailing 12-Month Gross Margin

3. Weak Operating Margin Could Cause Trouble

Operating margin is a key profitability metric because it accounts for all expenses necessary to run a store, including wages, inventory, rent, advertising, and other administrative costs.

Best Buy was profitable over the last two years but held back by its large cost base. Its average operating margin of 3% was weak for a consumer retail business. This result isn’t too surprising given its low gross margin as a starting point.

Best Buy Trailing 12-Month Operating Margin (GAAP)

Final Judgment

We see the value of companies helping consumers, but in the case of Best Buy, we’re out. After the recent drawdown, the stock trades at 9.8× forward P/E (or $62.90 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.

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