Electronics Retailers: Short-Term Boost With Long-Term Potential

Includes: BBY, CONN, GME, HGG, RSH
by: Simon Monger

Electronics retailers have been strong performers in an otherwise disappointing marketplace ahead of the holidays. In aggregate, the sector jumped 4.7% over the past month to outperform the S&P 500 by 11.1%. But, electronics stocks are far from overpriced with an average price-earnings multiple of 10.1x with a 1.4% dividend yield.

Here are some popular electronics retailers:

  • Best Buy Co., Inc. (NYSE:BBY)
  • GameStop Corp (NYSE:GME)
  • Hhgregg Inc. (NYSE:HGG)
  • RadioShack Corporation (NYSE:RSH)

Strong Holiday Sales Benefit Electronics

Last week, U.S. consumers showed up at retail stores in droves, driving “Black Friday” sales to record levels. Spending over the four-day weekend reached a record $52.4 billion, which was up 16% from the $45 billion in sales last year, according to the National Retail Federation. But investors will have to wait until after Christmas to see if the momentum will continue.

Electronics are among the most popular gifts this holiday season. In fact, nearly half of all shoppers were purchasing electronics on Black Friday, according to survey results from CEA and Caravan. These technologies included televisions, digital cameras, MP3 players and cellular phones, among other things.

Electronics Retailers Remain Cheap

Despite the impressive gains seen in electronics retailers, the industry appears to be trading at a relatively cheap valuation. Electronics retailers trade with an average price-earnings multiple of 10x, which is significantly lower than the S&P 500 index’s 20x multiple. Meanwhile, the P/E ratio also appears relatively cheap given the sector’s growth potential.

Recent weakness has also forced many electronics retailers to increase their dividend payouts. For instance, Best Buy reported a meager 0.1% increase in revenues and a net income that fell from $254 million to $177 million year over year. These results forced the largest electronics retailer in the U.S. to increase its dividend from $0.14 to $0.15 per share.

Finding the Right Time to Buy

Long-term investors confident in an economic recovery may want to take a closer look at the electronics retailing industry. With strong performance during “Black Friday” and a low price-earnings multiple, any better-than-expected performance could result in a higher stock price.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500. Become a contributor »
Tagged: , , , Electronics Stores
Problem with this article? Please tell us. Disagree with this article? .