Best Buy’s Stock Faces Risks Despite Nintendo Switch 2 Buzz

Note: Best Buy’s FY’25 ended on February 1, 2025

The highly anticipated Nintendo Switch 2 launch is generating buzz among gamers and retailers alike. While Best Buy (NYSE: BBY) stands to gain from the surge in demand, even a blockbuster product cycle may not be enough to offset the retailer’s mounting financial and macroeconomic headwinds.

BBY stock is already down 13% year-to-date, trailing the S&P 500’s flat performance. In its Q1 FY 2026 (ended May 3) earnings report, Best Buy posted a 2% decline in net sales and a 5% drop in diluted EPS, weighed down by lagging demand for home theaters, appliances, and drones. While gaming categories—including mobile phones, tablets, and computing—saw some recovery, it’s clear that not even the Switch 2 buzz can reverse larger spending fatigue. For investors seeking growth with lower volatility, the Trefis High Quality Portfolio has outperformed the S&P 500 with 91% returns since inception, providing a smoother ride through turbulence.

Image by Monoar Rahman Rony from Pixabay

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History Suggests Deeper Pain May Lie Ahead

Investors may be underestimating just how steep the fall could be. Best Buy has a track record of underperformance during downturns. During the 2022 inflation shock, BBY dropped nearly 55% peak-to-trough, compared to a 25% drop in the S&P 500. During the COVID crash in 2020, the stock plunged 45%, and during the 2008 financial crisis, it cratered 67%. In each case, BBY fell harder—and often took years to recover.

Could history repeat? If similar economic headwinds return, a drop from today’s $73 to around $35 isn’t out of the question. Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.

Q1 2026 Snapshot: Sales Down, Tariff Pressures Up

Best Buy’s net income in the three-month period that ended May 3 declined about 18% to $202 million, or 95 cents per share, from $246 million, or $1.13 per share, in the year-ago period. Excluding one-time expenses, including restructuring charges for its Best Buy Health business, the company reported earnings of $1.15 per share. First-quarter revenue dropped marginally to $8.77 billion. Comparable sales dropped 0.7% y-o-y in Q1. In the U.S., comparable sales also fell 0.7% y-o-y.

Adding to the headwinds are tariff-related cost pressures. About 30–35% of Best Buy’s merchandise originates from China, which faces tariffs up to 30%, while 40% comes from countries such as Vietnam, India, South Korea, and Taiwan, now subject to a 10% tariff. Best Buy has already raised some prices as of mid-May 2025 and continues to push vendors to diversify sourcing and cut costs.

FY 2026 Guidance: Lowered Expectations

For its fiscal 2026, the retailer said it now expects $41.1 billion to $41.9 billion of revenue, down from its previous range of $41.4 billion to $42.2 billion. It said it expects adjusted earnings per share to range from $6.15 to $6.30, which compares with prior guidance of $6.20 to $6.60. Looking ahead, Best Buy expects that consumer behavior will continue to exhibit the same resilience and caution observed in FY 2025, as high inflation persists in driving up household expenses and promoting a discerning, value-driven approach to discretionary spending, particularly on big-ticket items.

Valuation 

Best Buy currently trades at 18 times trailing earnings, which appears expensive compared to its four-year average P/E of 12 times. However, the stock’s forward P/E of approximately 11x suggests a more moderate valuation, potentially reflecting expectations of earnings growth ahead.

Despite this, analyst price targets indicate just a 4% upside from current levels, signaling limited optimism. That caution may be warranted given the company’s soft fundamentals: revenue is projected to remain flat in FY 2026, with only a modest 2% increase expected in FY 2027. At the same time, ongoing operational challenges and macroeconomic pressures continue to cloud the outlook. See our analysis on Best Buy’s Valuation for more details on what’s driving our price estimate for the stock.

Are You Ready If BBY Falls to $30?

If you own BBY, ask yourself this: Would you hold or fold if the stock dropped to $40—or even $30? The company’s track record in downturns and current margin pressures warrant serious caution. While new product cycles like the Nintendo Switch 2 can spark short-term boosts, they are unlikely to overcome the broader forces dragging down sales and earnings.