Circuit City Bankruptcy Is Great News For Competitors

A week after announcing it would close 20% of its stores, electronics retailer Circuit City (CC) has announced it will file for Chapter 11 bankruptcy protection. While that really is no surprise (retailers can’t operate in the red forever), investors should consider who wins from this development.

The most obvious choice is Best Buy (BBY), the leader in the space. Although CC is a weak player, there are many places where Best Buy and Circuit City locations are very close to each other. Given the store closings, plus the stigma of Chapter 11 with the stores that will remain open, BBY should see some incremental benefit. BBY trades at 8-9 times earnings, quite a low price for the best managed consumer electronics retailer.

Full Disclosure: Peridot Capital was long BBY at the time of writing, but positions may change at any time