Is A 50% Drop Ahead For Best Buy Stock?
Note: Best Buy’s FY’25 ended on February 1, 2025
Question: How would you react if you held Best Buy’s stock (NYSE: BBY) and its value fell by 50% or more in the coming months? Although this might seem extreme, such an occurrence has happened before and could very well repeat itself. The electronics retailer’s stock is already down 23% year-to-date, underperforming the S&P 500’s flat growth. In Q1 2026, the company reported a 2% decline in net sales and a 5% drop in earnings per diluted share, citing weakness in home theaters, appliances, and drones compared to last year.
Here’s the point: The key takeaway is that during a downturn, BBY stock might incur meaningful losses. Data from 2020 indicates that BBY stock lost about 45% of its value in only a few quarters while also seeing a peak-to-trough decline of about 55% during the 2022 inflation shock, faring much worse than the S&P 500. This raises the question: if similar headwinds were to materialize, could the stock face a significant sell-off and potentially drop to $35 from its current level of $66? Naturally, individual stocks are generally more volatile than diversified portfolios. Therefore, if you are looking for growth with reduced volatility, you might consider the High Quality portfolio, which has outperformed the S&P 500 and generated returns of over 91% since its inception.
Image by Monoar Rahman Rony from Pixabay
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Why is it relevant now?
In response to increased tariff-related costs, Best Buy has implemented selective price increases effective mid-May 2025. Best Buy’s heavy reliance on imported electronics makes it particularly vulnerable to tariff fluctuations. Approximately 30–35% of its merchandise is sourced from China, while about 25% comes from the U.S. or Mexico, which are exempt from certain tariffs due to domestic production or trade agreements. The remaining 40% originates from countries like Vietnam, India, South Korea, and Taiwan, which are subject to a 10% tariff. The U.S. currently imposes tariffs of up to 30% on imports from China.
Notably, around 97% of Best Buy’s products are imported by vendors rather than directly by the company. To mitigate tariff impacts, Best Buy has encouraged its vendors to diversify manufacturing locations, negotiate lower costs, and adjust the product mix.
How resilient is BBY stock during a downturn?
BBY stock has fared worse than the benchmark S&P 500 index during some of the recent downturns. While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.
Inflation Shock (2022)
• BBY stock fell 54.5% from a high of $138.00 on 22 November 2021 to $62.85 on 20 October 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $103.30 on 30 September 2024 and currently trades at around $66
Covid Pandemic (2020)
• BBY stock fell 44.9% from a high of $91.93 on 20 February 2020 to $50.69 on 23 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 22 July 2020
Valuation
At its current price of approximately $66 per share, BBY is trading at roughly a forward P/E ratio of 11x the consensus 2026 earnings estimate—slightly below its four-year average P/E ratio of 12x. Analysts have projected an average 12-month price target of $81, indicating a potential upside of over 20% from current levels. See our analysis on Best Buy’s Valuation for more details on what’s driving our price estimate for the stock.
Despite this valuation appeal, Best Buy has revised its fiscal 2026 guidance downward, now projecting revenue between $41.1 billion and $41.9 billion, compared to the previous range of $41.4 billion to $42.2 billion. Adjusted earnings per share are expected to be between $6.15 and $6.30, down from prior estimates of $6.20 to $6.60. The company anticipates continued cautious consumer behavior amid persistent inflation, leading to restrained discretionary spending, particularly on high-ticket items. Consensus forecasts suggest flat revenue growth in fiscal 2026, with a modest 2% increase projected for fiscal 2027, reflecting tempered expectations amid ongoing macroeconomic and operational challenges.
Given this potential slowdown in growth and the broader economic uncertainties, ask yourself the question: Do you intend to hold on to your BBY stock now, or will you panic and sell if it begins dropping to $40, $30, or even lower? Holding onto a declining stock is never easy. Trefis collaborates with Empirical Asset Management—a Boston area wealth manager—whose asset allocation strategies yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Empirical has incorporated the Trefis HQ Portfolio into its asset allocation framework to provide clients with better returns and less risk compared to the benchmark index—a less turbulent ride, as shown in HQ Portfolio performance metrics.
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