Amazon.com, Inc. (AMZN), Wal-Mart Stores, Inc. (WMT): Best Buy Co., Inc. (BBY) Is Facing Too Many Headwinds

Most consistent company

Wal-Mart Stores, Inc. (NYSE:WMT) is another threat to Best Buy. But competition isn’t the most important angle here–what’s more important is that Wal-Mart recently missed expectations and guided lower for the year, citing a weak consumer across all markets.

This news is concerning because, when combined with a similar report and comments from Macy’s one day earlier, it potentially indicates that the economy isn’t recovering and that the consumer is perhaps weaker than most people anticipated. If that’s the case, then Best Buy is likely to see trouble ahead. Wal-Mart Stores, Inc. (NYSE:WMT) and Macy’s are two of the best-managed retailers in the world. If they’re both reporting trouble, then it’s more likely due to the economic environment as opposed to their individual operations.

For the record, Wal-Mart Stores, Inc. (NYSE:WMT) is the most consistent company mentioned in this article. Profits are commonplace, and its net margin of 3.6 might not be high, but it’s still higher than Best Buy at (1.5%), and Amazon.com, Inc. (NASDAQ:AMZN) at (0.1%).

Wal-Mart Stores, Inc. (NYSE:WMT) also turns more investment dollars into profit, sporting a return on equity (ROE) of 23.6%, versus (13.5%) for Best Buy, and (1.2%) for Amazon.com, Inc. (NASDAQ:AMZN). Furthermore, Wal-Mart yields 2.4%, whereas Best Buy yields 2.2%, and Amazon offers no yield. The ultimate point here:  Wal-Mart Stores, Inc. (NYSE:WMT) is likely to be the best long-term investment of the group.

Conclusion

Best Buy has potential to improve its business and see stock appreciation over the short to medium term, but with big retailers strongly hinting at weaker-than-expected consumers, and industry trends favoring deeper-pocketed rivals, Best Buy should only be looked at as a speculative trade and not as a long-term investment.

The article Best Buy Is Facing Too Many Headwinds originally appeared on Fool.com and is written by Dan Moskowitz.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com.

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