Best Buy Stock Has a Lot to Prove on Tuesday

One of retail's most surprising success stories is Best Buy (NYSE: BBY). Consumer electronics chains big and small have faltered, but Best Buy is going where no Circuit City or RadioShack has gone before by competing against Amazon.com (NASDAQ: AMZN) and living to tell the tale.

Shares of Best Buy are on fire. The stock has soared 45% so far this year, hitting yet another all-time high in intraday trading on Thursday. It's against this bullish backdrop that Best Buy will step up with fresh financials, reporting its fiscal second-quarter results on Tuesday morning.

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Analysts are holding out for modest growth. They see revenue of $8.66 billion in revenue for the quarter ending in July, 1.5% ahead of the prior fiscal year's showing. This may not seem like much, but meager top-line growth hasn't been a deal breaker in the past. Enterprise revenue rose just 1% in Best Buy's fiscal first quarter, and that didn't stop the stock from soaring 15% that week. Wall Street pros were actually bracing for a dip in sales, but the big-box retailer surprised them with positive comps.

The market's holding out for heartier growth at the other end of the income statement. Wall Street's targeting a profit of $0.63 a share, comfortably ahead of the $0.57 a share it served up a year earlier. Investors who have been following this race in recent quarters are probably banking on more. Best Buy has consistently exceeded the market's bottom-line expectations, beating Wall Street's profit targets by a double-digit percentage for five consecutive quarters.

It's easy to wonder if even the modest top-line growth is sustainable. Best Buy has benefited from weaker leveraged competitors closing stores, and eventually it's going to need organic growth to be enough to carry the load. Best Buy is faring well online -- e-commerce soared 23% in its previous quarter -- but pure e-tailers are also getting better about pushing big-ticket items. Best Buy stock took a temporary hit this summer after Amazon struck a deal to sell Kenmore appliances. The stock quickly recovered, vanquishing the latest Amazon-tethered threat.

Best Buy has executed a masterful turnaround under CEO Hubert Joly, and blowing through Wall Street's profit targets with ease will work wonders for your stock price. The challenge for new investors is that a stock rallying into an earnings report may already be discounting a blowout. Best Buy is hot, but sometimes a report isn't hot enough.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.