Analyst: Best Buy Stock is "Near Peak" Valuation

The $100 will be a key area to watch for BBY going forward

Digital Content Manager
Dec 10, 2020 at 10:41 AM
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The shares of Best Buy Co Inc (NYSE:BBY) are down 2.2% at $102.52 at last check, after Goldman Sachs downgraded the tech retailer to "sell" from "neutral," and cut its price target to $97 from $107. The analyst in coverage said the equity is "near peak" valuation, and added that a surge in demand for electronics during the pandemic, as well as the multi-year durability of those products, puts BBY at the risk of downside moving forward. In addition, the stock is historically one of the worst to own in December.

Best Buy stock has cooled off from its Nov. 5 all-time record of $124.89. Despite the now 9% December deficit, the pullback has so far been contained by the shares' 160-day moving average, an area that roughly coincides with the round $100 level. Year-to-date, BBY remains up 16.7%.

Analysts were optimistic toward the equity coming into today, with 10 of the 17 in coverage sporting a "buy" or better rating, and the remaining seven carrying a tepid "hold." Plus, the security's 12-month consensus target of $123.44 is a whopping 20.4% premium to its current perch.

That bullish sentiment is echoed in the options pits, where calls are popular. This is per the stock's 10-day call/put volume ratio of 2.74 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than 94% of readings from the past year. In other words, calls are being picked up at a quicker-than-usual clip.  

Despite the security's negative price action, this optimism still rings true today. So far, 14,000 calls have crossed the tape, double the average intraday amount. Most popular, however, is the weekly 12/11 100 strike-put, followed closely by the 12/24 110 strike-call. New positions are currently being opened at the former, as traders expect to see more downside for BBY by the end of the week.

Now could be an opportune time to take advantage of the security's next move with options. The stock's Schaeffer's Volatility Index (SVI) of 35% sits in the particularly low 13th percentile of its annual range. This means BBY currently sports attractively priced premiums.

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