Best Buy's ( BBY) business has started to pick up in recent quarters as the U.S. economy emerges from recession.

However, the country's largest consumer electronics retailer faces fierce competition from low-cost merchandisers like Wal-Mart ( WMT) and Amazon ( AMZN).

We see a potential 6% downside to our our $42.03 stock price estimate for Best Buy in the event that the company's revenue per square foot (an important retail metric) fails to grow from current levels during the Trefis forecast period. Our analysis follows below.

Best Buy's revenue per square foot for U.S. stores declined during the recession. However, the 2008 bankruptcy of rival consumer electronics retailer Circuit City gave Best Buy a golden opportunity to grab new customers. As consumer demand recovers with the U.S. economy, we expect Best Buy's revenue per square foot to rise steadily over the next few years, from $907 in 2009 to $1,080 by 2016, the end of our forecast period.

You can drag the trend-line in the chart above to create your own revenue per square foot forecast for Best Buy and see how it impacts the company's estimated share value.

Competitive Threats

Low-cost retailers like Wal-Mart are increasingly focusing on consumer electronics. This poses a significant challenge to Best Buy, which has a relatively high cost structure due to its strategy of building appealing showrooms stocked with the latest products and staffed with well-trained, knowledgeable salespeople.

Last year, Wal-Mart CEO Michael Duke indicated that he planned to curb his company's gross margin growth, essentially indicating that he planned to keep prices very low. Best Buy's revenues could suffer significantly if large numbers of consumers start educating themselves at Best Buy stores but buying the actual products from Wal-Mart.

Meanwhile, online retailers like Amazon offer convenient shopping and home delivery, and can keep costs low because they don't have brick-and-mortar stores. Although Best Buy has expanded its online sales capacity, the company's prices are generally higher than Amazon's. And unlike Amazon, Best Buy does not offer free shipping.

Best Buy's stock is extremely sensitive to changing revenue per square foot in its U.S. stores division, which constitutes nearly 74% of our stock price estimate. As discussed, we see a potential 6% downside to our estimate in the event that Best Buy's U.S. competitors grab market share at its expense, thus stunting its revenue growth.

You can see the complete $42.03 Trefis price estimate for Best Buy's stock here .

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