Why Best Buy’s Struggles May Not Be Over Yet

October 20th, 2025 by Trefis Team
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BBY: Best Buy logo
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Best Buy

Best Buy (NYSE: BBY), the leading U.S. electronics retailer, has lost approximately 20% of its value over the past year, despite the S&P 500 rising 13%. Why the disconnect? It reflects a combination of margin pressures, slowing consumer demand, and broader challenges in the retail sector.

The company has specifically warned that tariffs on imports from China and Mexico are compressing margins and could force higher prices for shoppers. Sales growth remains uneven: comparable store sales fell 0.7% in Q1 FY26, (Jan. fiscal year), with gains in gaming and mobile offset by softness in appliances and home theater. While Q2 saw modest 1.6% comparable growth, gross profit rates edged lower due to a heavier mix of lower-margin products.

The reality is clear: Best Buy is navigating a challenging environment, where discretionary spending is under pressure, margins are tight, and even small price increases can prompt customers to opt for online alternatives. For investors, this combination underscores that the stock’s current price may mask meaningful downside risks.

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The Fundamental Problem

Best Buy stock looks cheap on the surface—its price-to-sales ratio of 0.4 and price-to-free-cash-flow ratio of 12.1 are well below the S&P 500 averages of 3.2 and 20.6. But that discount exists for a reason.

Growth is deteriorating. Best Buy’s revenues have declined 2.2% over the past twelve months, and the company’s three-year average growth rate is –5.4% compared with the S&P 500’s 5.3%. Profitability is also weak: operating margin stands at 4.1%, net margin at just 1.9%, far below market averages.

Put simply, this isn’t a growth story—it’s a low-growth, low-margin retailer trying to navigate structural shifts in how consumers buy technology.

Historical Precedent: The 2022 Shock

Let’s look at what history says when markets turn against Best Buy.

During the 2022 inflation shock, BBY plunged 54.5% from its 2021 high of $138 to $62.85, while the S&P 500 dropped only 25%. And unlike the broader market, Best Buy never fully recovered—it peaked at $103 in September 2024 and trades today near $80.

Even during the 2008 financial crisis, BBY fell 67% versus the S&P’s 57% decline. The pattern is clear: when consumer spending contracts, Best Buy gets hit harder and takes longer to rebound.

The Risk Factors That Could Hurt BBY

  1. Tariff Exposure and Margin Compression
    Ongoing tariff headwinds mean costs could rise just as demand weakens. Passing those costs to consumers risks further reducing sales in discretionary categories.

  2. Weak Growth Profile
    Revenue contraction of 5% over three years and sluggish quarterly growth underline how hard it is for Best Buy to grow in a mature, price-competitive industry.

  3. Profitability Pressure
    A 1.9% net margin leaves little buffer if sales slip. Lower-margin product mixes and higher operational costs could drive profits even lower.

  4. Consumer Spending Risk
    Electronics are discretionary purchases. In an inflationary or high-interest-rate environment, these are among the first spending categories to get cut.

  5. Competitive Threats from Online and Big-Box Rivals
    Amazon (NASDAQ: AMZN), Walmart (NYSE: WMT), and Target (NYSE: TGT) continue to pressure pricing. Unlike Best Buy, they have diversified revenue streams and stronger digital ecosystems.

What’s the Real Downside Risk?

If history is any guide, Best Buy could face an additional 30–40% downside if macroeconomic or company-specific pressures intensify. The stock has historically fallen far more than the broader market during downturns, sometimes losing over half its value. Even though BBY may appear undervalued today, weak growth, shrinking margins, and sensitivity to consumer spending make it vulnerable. Should tariffs persist or discretionary spending soften further, a drop back to the mid-$50s range is entirely plausible, especially if investors rotate away from consumer electronics.

The Bottom Line

This analysis isn’t about pessimism—it’s about perspective. Best Buy remains a household name with solid cash reserves and moderate debt, but it’s far from a resilient growth stock. When markets shift from optimism to caution, retailers like Best Buy tend to suffer outsized declines. Ultimately, the question isn’t whether Best Buy will survive—it’s whether your portfolio can handle the potential drawdown if the retail cycle turns against it again.

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