Best Buy Co., Inc. (BBY)

Total return at 5 years: 13.8%/year = 9.8% appreciation + 3.9% dividend. The target price ($139) is ex-dividend; the $20 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $119 · Multiples $129) exceeds the market price ($87).

Today — fairly valued: at $87 trades ~32.8% below its value discounted to today (~$129); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Infravalorado: the target price ($139) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$83.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($87) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-1.9%/year) than we project (5.5%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$0.8 bn of owner earnings in year 5 (vs ~$1.1 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Resultado operativo (EV/EBIT — nivel de empresa, pre-interés). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Specialty consumer electronics retailer, operationally capital-light: 871 of its 926 Domestic segment stores are leased. The model is built at the enterprise level —the multiple is applied to operating profit, which is pre-interest— so cash and short-term investments (US$2,315 million) and debt (US$1,165 million) enter the bridge and funding is charged once; this also corrects the label, which until this pass read «comparable net income (P/E)» even though the model had been valuing on operating profit ever since the specialty retail archetype migrated to the enterprise level. Year 0 = trailing twelve months ended August 1, 2026, incorporated from the 8-K of August 27, 2026: revenue of US$42,201 million and a GAAP operating margin of 4.1%, still carrying the health unit impairments and the restructuring charges the company excludes from its adjusted earnings. Year 1 rises from −0.5% to +1.7%, and this is not a re-reading of the trend: the company raised its guidance in that same release and the model was anchored in the previous one. Both anchors moved together — revenue of US$42,300 to 42,800 million against US$41,200 to 42,100 million in May, comparable sales of +1.9% to +3.0% against the previous range of −1.0% to +1.0%, an adjusted operating income rate of 4.4% to 4.5% against 4.3% to 4.4%, and adjusted diluted earnings per share of US$6.70 to 6.90 against US$6.30 to 6.60. The +1y window is built by levels: the first half of fiscal 2027 already reported US$18,715 million, so the guided midpoint leaves US$23,835 million for the second half, and the first half of fiscal 2028 is projected growing 2.0% over its comparable — the result is US$42,924 million, that is +1.7%. From there the path stays near +2.0% a year, the lower band for a mature specialty retailer, without extrapolating the quarter's +4.1% comparable sales. The year-1 operating margin takes the guided adjusted rate (4.45% at the midpoint) and expands only to 4.65% by year 5: the jump from the trailing window's 4.1% is a declared normalization —it removes the impairment and restructuring the company itself excludes— not organic growth, and no return to pre-pandemic margins is assumed because the moat is eroding. Cash does not accumulate and no share path is modeled: the average diluted count for the quarter rose from 212.0 to 212.7 million over the year, meaning the trailing-window buyback (US$144 million) barely offsets compensation-related issuance, and the previous note, which spoke of a net reduction of ~1.5% a year, described behavior no longer present in the data. The base exit multiple (13.2x) sits within the specialty retail archetype band expressed at the enterprise level, disciplined by that eroding moat and by modest terminal growth; return on invested capital is high (63.9%) because the business operates from leased stores with supplier-financed working capital, not because its margins are.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $139 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $87, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $139 in 5 years plus $20 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $129. Against the current market price ($87), the margin of safety is 32.8% (trades below the maximum → there is margin) and the total return at that price would be 13.8% annually.

• Multiple vs quality. EV/EBIT of 10× on operating income, below the floor of the specialty retailer band (12-17×) — the market already discounts the eroding moat.
• Reverse-DCF. Today's price does not require aggressive growth to be justified, unlike the high-quality compounders in the covered universe.
• Margin of safety. With the trajectory anchored to guidance and the multiple only just normalizing toward the floor of its band, the +14% total return leaves some margin over the relevant hurdle.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ! CFROIC backs up the ROIC (66%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC exceeds cost of capital. The accounting level comes out well above the 10% bar, but largely due to structurally low invested capital (leased stores, negative working capital) — not necessarily directly comparable with a business that owns its assets.
• Margin and stability. Adjusted operating margin ~4.3%, among the thinnest in the covered universe; GAAP earnings were volatile over the last two years due to non-recurring impairments.
• Quality of cash. Real TTM FCF $1.6bn (OCF $2.3bn − capex $0.7bn), consistent with adjusted earnings. The Best Buy Health impairments are non-cash charges, so they do not distort operating cash flow the way they do GAAP earnings.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The driver of a specialty retailer is comparable sales by category, not an aggregate volume × price. In fiscal 2026 consolidated comparable sales were +0.4%: computing and mobile phones (+5.7%, 47% of mix) and entertainment (+6.8%) offset appliances (−8.9%) and consumer electronics (−5.4%). The first quarter of fiscal 2027 showed +2.0% comparable, with International (+4.7%) outpacing Domestic (+1.8%).

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (1-ago-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Recent growth (+1.0% TTM, +2.0% Q1 FY27) is real, with no material FX distortion (Domestic ~92% of revenue).
• Growth driver. Category mix: computing/mobile phones rising, offsetting appliances and consumer electronics in structural decline.
• Deceleration and cycle. Three years of decline (FY24-25) have only just reversed; the recent historical trajectory does not yet provide a solid base for projecting sustained acceleration.

• Relevant in 10 years (recurrence). Consumer electronics will keep being bought, but increasingly through channels that bypass a physical store — the recurrence of the FORMAT is in question, not that of the category.
• Pricing power. Low: the price-matching policy against online competitors structurally limits gross margin.
• Moat and its direction. Narrow moat (service, purchasing scale) with a direction that is eroding due to direct-to-consumer sales by suppliers and AI-assisted shopping search.
• Capital cycle. Mature and highly competitive sector; without strong capital barriers to entry, competition (online, private label, direct suppliers) continuously pressures margin.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $1.2 bn
• ✓Interest coverage (EBIT / interest)37.2x
• –Liquidity (current ratio)no data
• !Cash quality (CFROIC vs ROIC)CFROIC backs 66% of ROIC
• ✓Value creation (ROIC − 10% bar)+54pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.9x — no over-investment
• !Float / working capitalConsumes cash $0.5 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.3% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Net cash position (cash $1.75bn > total debt $1.17bn) — a conservative balance sheet for a cyclical retailer.
• Coverage and cash. Minimal net interest (TTM interest expense ~$46M); real FCF of $1.6bn comfortably covers the dividend and guided buybacks.
• Operating leases. 871 of 926 domestic stores are leased — a material fixed rent commitment that does not appear in the balance sheet's accounting debt.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. Low insider ownership as a group (<1% estimated); founder Schulze retains 6.4% with no active management role. CEO with a 100% internal career.
• Capital allocation. Dividend prioritized, buybacks decelerating with discipline toward real cash capacity. Best Buy Health with two large consecutive impairments.
• Integrity / normalization. The company clearly separates the GAAP result from the adjusted one in its earnings release, disclosing each adjustment item (impairment, restructuring).

• Missing buyers: three consecutive years of revenue decline (FY24-25) left a narrative of structural decline that the recent stabilization (FY26 +0.4%, Q1 FY27 +2.0%) has not yet fully reversed in market perception.
• Motivated sellers / one-offs: two large, consecutive impairments at Best Buy Health ($475M FY25, $171M FY26) plus $190M of restructuring sank the GAAP result, even though the company's own guided adjusted earnings remained stable.
• The eroding moat (direct-to-consumer sales by suppliers, AI-assisted shopping) is a real and known risk, not a surprise — the market is discounting it explicitly in the multiple.

There is an identifiable source of discount (the GAAP noise from non-recurring impairments and the shadow of three years of revenue declines), but the eroding moat is a genuine risk, not merely perception — this thesis's margin of safety rests on the recent stabilization being real and on the entry multiple already being near the floor of what is reasonable for the category.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +6%/year (+36% total): the margin of safety protects the downside. The bull (+22%/year, +172% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Moat erosion from AI and direct sales. The structural disconfirmer: AI-assisted search/shopping and direct-to-consumer sales by suppliers pressure the customer relationship and pricing power.
• Tariffs and supply chain. Only 1-3% of the assortment is imported directly; the rest depends on suppliers in China, Mexico and Southeast Asia, exposed to trade policy.
• Appliance category. −8.9% comparable in fiscal 2026, the biggest category drag; no clear signs of stabilization yet.
• Seasonal concentration. A large share of annual results is generated in the fourth fiscal quarter; any disruption in that window disproportionately hits the year.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: narrow moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a multiple/growth of 1.8 → reasonable for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 10% (EBIT/EV) + ROIC 64% → makes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -2% vs our 6%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +2%/yr, bull-scenario ceiling +19%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, eroding; sources: intangibles, efficient scale, cost advantage, switching costs → fails the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -2%, within what we project (6%) — the story squares with the numbers.