Can BBY Sustain Its 17.9% Three-Month Rally as Growth Drivers Broaden?

Shares of Best Buy Co., Inc. BBY have gained 17.9% in the past three months, raising the bar for further upside. The advance now has better operating support, with earnings, revenues and comparable sales improving in the latest quarter. Broader category growth and higher fiscal 2027 guidance strengthen the case for sustained momentum. Memory-cost inflation, tougher computing comparisons and a valuation above recent norms keep the investment picture balanced.

BBY's Three-Month Rally Meets Stronger Fundamentals

Second-quarter adjusted earnings rose 15% to $1.47 per share and beat the Zacks Consensus Estimate of $1.37. Revenues increased 3.6% to $9.78 billion and topped the consensus mark of $9.56 billion, while enterprise comparable sales advanced 4.1%.

Best Buy raised fiscal 2027 revenue guidance to $42.3-$42.8 billion and adjusted earnings guidance to $6.70-$6.90 per share. Comparable sales are now expected to increase 1.9-3%, up from the prior range of a 1% decline to 1% growth.

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Best Buy's Q2 Beat Adds Weight to the Momentum

Domestic comparable sales rose 4.5%, while domestic online comparable sales increased 5.1%. The domestic gross profit rate expanded 60 basis points to 24%, helped by Marketplace, Best Buy Ads and about $34 million of tariff refunds, partly offset by lower product margin rates.

Online revenues represented 33.1% of domestic revenues, up from 32.8% a year earlier. That mix reinforces Best Buy's omnichannel traction as Marketplace and Best Buy Ads scale alongside retail operations.

BBY's Growth Mix Is Broadening Beyond Computing

Computing delivered its 10th consecutive quarter of positive comparable sales growth, while mobile phones posted a sixth straight quarter of growth. Home theater also strengthened, with domestic TV sales rising more than 10% year over year.

Combined sales of AI glasses, trading cards and health rings more than doubled from a year earlier and contributed about one percentage point to comparable sales growth. Best Buy Business sales also increased 21%, adding another growth source.

Best Buy Faces Memory Inflation and Tougher Comps

Computing average selling prices increased in the mid-teens as unit volumes fell in the high single digits. Higher memory costs are flowing into the assortment, creating elasticity risk even as Best Buy uses promotions, financing, trade-ins and earlier inventory purchases to preserve key price points.

Management expects computing growth to slow in the second half as comparisons get tougher. Traditional gaming also declined as Best Buy lapped the prior-year Switch 2 launch, underscoring the category's exposure to uneven product cycles.

BBY's Valuation Leaves Less Room for Disappointment

BBY trades at 12.5X forward 12-month consensus EPS estimate, above its five-year median of 11.5X and slightly above the Zacks sub-industry's 12.3X. That premium leaves less valuation cushion if second-half sales or margin progress falls short.

Target Corporation TGT, one of BBY's retail peers, trades at 14.9X forward earnings. Walmart Inc. WMT, another peer, trades at 36.8X. Those comparisons place BBY below both peers on this measure, even as its own multiple sits above its five-year median.

BBY's Hold Signal Meets Strong Style Scores

The bottom line is that BBY's rally has broader fundamental support, but the recent move already reflects some of that progress. Memory inflation, tougher comparisons and a higher-than-median valuation argue for a measured view of additional upside.

The stock currently carries a Zacks Rank #3 (Hold). BBY also has a Value Score of A, Growth Score of A, Momentum Score of A and VGM Score of A. Those scores indicate favorable characteristics across multiple investing styles, but they complement rather than override the Zacks Rank, supporting a balanced near-term stance. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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