Electronics retailer Best Buy (BBY) has gone from a punch line to a turnaround story in the last year and change. After struggling through declining sales, management scandals, and economic turmoil, Best Buy is regaining profitability again thanks to its "Renew Blue" turnaround initiative. But it hasn't been enough to attract hedge funds in 2014: portfolio managers unloaded 10.66 million shares in the first quarter of this year. That amounts to more than 20% of institutional investors' holdings in BBY.
Best Buy may have great reach with its huge footprint of nearly 2,000 stores across the world, but encroachment from the likes of Amazon.com has meant that many Best Buy locations have become physical showrooms for BBY's better-priced rivals. The restructuring plan has helped to trim substantial costs and make BBY dramatically more competitive in 2014, but none of that changes the fact that Best Buy's business is being fundamentally challenged.
On the upside, investors don't have to pay much for the business today. Shares trade at just 13 times earnings -- a tiny multiple for such a low-margin business. If BBY can squeeze just a few more basis points out of its margins, shares could move materially.
Ultimately, it's hard to call BBY a conviction buy at today's levels. Until the firm can give consumers a compelling reason to spend money inside BBY stores, this name is going to continue to trade at a discount.