I purchased Best Buy (BBY) yesterday at $32.30 per share.  Best Buy is the largest consumer electronics outlet in the world.  The company operates more than 1,400 stores throughout the US and Canada, and another 2,600 stores in Europe and China, mostly under the Best Buy, Best Buy Mobile, and The Car Phone Warehouse banners.

Best Buy is suffering from the threat of Wal-mart’s further expansion into electronics, as well as online competition.  Due to these, Best Buy stock is selling near its 52-week low.  It is priced as if it has no growth in its future, yet I have to believe there’s room for more than just Wal-Mart in this space.

Some numbers on the stock:

price to peak earnings = 8
Free Cash Flow yield =12%
dividend yield = 1.77%
Return on Capital = 21%

This was a very tough decision to purchase for the following reasons:
1) The threat from Wal-mart and online competition may be real.
2) People are buying fewer movies and music from stores thanks to Netflix /Itunes.
3) Best Buy has a lower profit margin of 4%, I generally want a minimum of 5%

Despite these concerns I went ahead and purchased.  And I used my new ‘Kelly Formula for Stocks’ Excel spreadsheet to determine how much to invest.  The Kelly spreadsheet instructed me to invest 2% of my portfolio in the stock.

Best Buy is selling at a 35% discount to my estimate of Intrinsic Value.