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Looking at the recent price action of Best Buy (NYSE:BBY) shares would have you think the retailer was on its death bed, rather than simply dealing with flat lining growth. The stock, currently trading at $28 per share, hasn't seen these levels since the financial crisis, and before that, in 2003. At about 3.5 times trailing cash flow, Best Buy is the cheapest large cap retail stock I know. For comparison sake, Sears (NASDAQ:SHLD) fetches 7.4x and Macy's (NYSE:M) 5.1x.

Why such a negative opinion of Best Buy's future? Combine market share losses to the online-only discounters [read: Amazon (NASDAQ:AMZN)] and consumers' shift to the absolute lowest price [Wal-Mart (NYSE:WMT), and to some degree, Target (NYSE:TGT)], BBY is having trouble growing its business. Sales growth is down to the low single digits.

The company, however, is far from out of options and is still very profitable. Executives have begun toying with store layout redesigns to promote a hands-on atmosphere, not unlike an Apple (NASDAQ:AAPL) store, as opposed to simply perusing aisle after aisle without much in the way of demonstration or salesperson support. Rumors are also swirling that Best Buy may start matching prices of other retail outlets, such as Wal-Mart, to ensure it does not lose sales to competitors from the very customers it targets; those who want to make a purchase from an actual storefront.

Given Best Buy's size (domestic store count is 1,100) and popularity of the brand, despite competitive pressures lately, there is certainly no reason to completely write-off the company as investors seem to be doing right now. Wall Street is too focused on market share and same store sales growth, ignoring cash flow and valuation, which are the keys to generating returns for shareholders in the future. Trading at 3.5 times cash flow gives investors a huge cushion. The stock will rebound quickly if any of the operating initiatives bear fruit. Personally, I think everyday low pricing could really work, since the shopping experience at Best Buy easily trumps Wal-Mart and Target, if prices were similar.

Furthermore, the financial engineering lever can also create value. Best Buy repurchased about 10% of all outstanding shares over the last year and the dividend is up above 2% thanks to the recent stock price decline. Unless sales start to fall off a cliff soon, there is really no way to justify 3.5 times cash flow for BBY shares.

And if management fails on both counts (sales improvements and accretive capital allocation decisions) you can be sure that private equity and/or activist shareholders will take a very hard look at the company. The upside versus downside here is very attractive for long term value investors looking for contrarian plays in the current market environment.

Source: Best Buy's Death Is Greatly Exaggerated