An Electronics Megastore Stock Rebounds — Find Out if It’s an Opportunity or a Trap

By TradeSmith Editorial Staff

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On Aug. 22, 1966, Richard M. Schulze and his business partner James Wheeler founded a little retailer of stereos and other electronics called Sound of Music.

After scraping together money from personal savings and taking out a second mortgage on Schulze’s home, the duo was rewarded with a million dollars in revenue by the end of the first year.

Three years later, Sound of Music had grown to three locations, and Schulze and Wheeler decided to part ways, with Schulze buying out his partner.

By 1981, there were nine stores.

This is when Schulze’s life – and the way we would purchase electronics for decades – would change forever.

On June 14, 1981, a tornado ripped the roof off the largest and most profitable Sound of Music store in Roseville, Minnesota, destroying the showroom, as you can see in a picture sourced from the company’s current corporate website.

Miraculously, the storeroom was spared, and although products had been damaged, many were able to be sold as-is at reduced prices.

So, making the best of a bad situation, Schulze set up a trailer in the store’s parking lot and filled it with the merchandise affected by the tornado. But he also decided to offer deals on display models, discontinued products, overstock, and open-box items.

Schulze fatefully advertised the sale as a place to get the “best buy.”

From that event, Sound of Music generated more money in four days than it usually earned in a month.

Schulze saw how people liked picking up and touching the merchandise, not feeling pressured into buying anything in the casual parking lot atmosphere. Most of all, he saw how they loved the “best buy” prices.

He then completely changed his business model, putting products on the store floor rather than in the stockroom so that customers could touch the items. He also did away with commissioned salespeople to recreate that no-pressure environment from the parking lot event.

And the biggest change he made was in the name, which, as you may have guessed, he changed to Best Buy.

Today, Best Buy Company Inc. (BBY) has over 1,000 stores and roughly 100,000 employees spread out across North America.

From smart TVs to video game consoles to the HDMI cord needed to connect the two, Best Buy serves as a one-stop electronic shop.

And when people were stuck at home in the early days of the COVID-19 pandemic, they loaded up on every electronic they could think of at Best Buy, helping the stock price roughly double from March 2020 to November 2021.

Like most retail stocks in 2022, BBY dropped because people had less discretionary funds, as they were spending more to fill up their cars and put food on the table thanks to high fuel costs and inflation.

But as you can see from recent price action, marked by the green line on the stock chart above, there looks to be a bit of a rebound forming.

Using proprietary information about consumer happiness, purchase intent mentions, and what types of electronics are in demand, LikeFolio Co-Founder Landon Swan recently shared his insight into whether this will be a sustained stock price rally or nothing more than a trap.

Here’s what Landon had to say.