Best Buy doesn't live up to its name

NEW YORK (CNNMoney) -- Americans love their gadgets. Smartphones, tablets, 3D gaming handhelds. You name it and we want to buy it -- stagnant economic recovery be damned!

So you'd think that our collective techno-fatuation would be good news for a store that sells all these cool electronics products. Alas, Best Buy (BBY, Fortune 500) is not living up to its name as an investment.

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Shares of the Minneapolis-based company are down 15% this year and more than 30% in the past 12 months.

Simply put, Best Buy isn't benefiting from all the cool, innovative devices out there. It's facing brutal competition from mass merchandise retailers like Wal-Mart (WMT, Fortune 500) and Target (TGT, Fortune 500) as well as online kingpin Amazon (AMZN, Fortune 500).

It doesn't help that Apple (AAPL, Fortune 500) also has its own stores that Mac fans can go to in order to buy the latest iThing.

Best Buy reported on Thursday that its same store sales, a key measure of health in retailing, fell 4.6% in its most recent quarter. That followed weak results during the crucial holiday shopping season.

Best Buy also warned that the next year will be tough as well. It predicted same store sales would be flat to down 3% for fiscal 2012.

With all that in mind, it made me wonder if Best Buy should consider going private to escape the increasingly critical glare of Wall Street. I asked followers on Twitter Friday for their thoughts on what Best Buy needs to do. There were some interesting responses.

Someone with the Twitter handle of @mapleleafnj noted this bleak future outcome if Best Buy didn't get its act together. "Circuit City, Tops, Crazy Eddie... Most tech shops go broke sooner or later." You could add Blockbuster to that list too.

Another tweeter known as @FrankDaTrader pointed out that Best Buy is basically like a country wide showroom for Amazon. In other words, you can go to the store to see and play with a product and then you just buy it online instead.

Best Buy was not immediately available for comment. Still, analysts said that while it would be a good idea for Best Buy to explore going private, it's not that simple.

For one, Best Buy is currently valued at about $11.5 billion. Michael Pachter, an analyst with Wedbush Securities in Los Angeles, said that Best Buy would be foolish to accept anything less than a 50% premium in a buyout.

That may be a bit generous but let's do the math. A 50% premium implies a takeover price of a little more than $17 billion. Private equity firms are eagerly circling the retail sector, which is clearly in need of more consolidation.

But most of the deals so far have been significantly smaller. Leonard Green & Partners bought arts and craft retailer Jo-Ann Stores for $1.6 billion while TPG led a group (that included Leonard Green) that took apparel retailer J Crew private for $3 billion.

R.J. Hottovy, an analyst with Morningstar in Chicago, said it may be tough to find enough private equity firms to pony up what it would cost to finance a Best Buy deal.

"On the surface, Best Buy going private makes sense but it's a matter of getting a deal done. In this environment, that's not easy no matter who the backer is," he said.

So what can Best Buy do if a takeover is off the table? Pachter said Best Buy needs to close some of its larger stores and refocus on a smaller store format.

"Do you really need 36,000 square feet of space to show people that a tablet, smartphone and TV work together? You don't," he said.

Of course, there already is a retail chain that has that business model. It's name is RadioShack (RSH, Fortune 500). And it's not doing that great either. Shares are down nearly 40% in the past year and it also is frequently mentioned in rumors as a prime LBO candidate.

Pachter said that he thinks Best Buy could thrive in a smaller store format though, arguing that Best Buy has a much better brand name and reputation than RadioShack.

That may be true. And it's not as if Best Buy faces an imminent liquidity crunch. It has over $1 billion in cash and is still a profitable company. So it's overly dramatic to predict that it will eventually suffer the same fate as Circuit City. There is time to right the ship.

But Hottovy wonders if Best Buy can really do anything to solve its problems other than offer customers deep bargains to get them in the door.

"In a highly commoditized business like electronics, people flock to the lowest price possible," he said. "It's going to be an uphill battle for Best Buy."

-- The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.