Best Buy (BBY  ) rallied nearly 10% following its strong Q2 earnings report, however, shares gave up the bulk of these gains in the ensuing sessions. There has been a risk-off tone in many consumer discretionary stocks as investors are increasingly concerned about the outlook for 2022 given slowing growth and the expiration of stimulus checks in addition to tough comps this year.

Consumer spending has been quite strong in 2021 due to the stimulus checks and pent-up demand from 2020. This is evident from many retailers' earnings reports which have been among the strongest in terms of beating earnings and raising guidance for the full year. Yet, we are seeing the bulk of them being sold into strength.

Inside the Numbers

In Q2, Best Buy reported $2.98 in earnings per share which were meaningfully higher than expectations of $1.85 per share. It was also a meaningful jump from $1.65 in share in Q2 of 2020.

Revenue also beat at $11.85 billion vs. $11.5 billion expected. This was a 20% increase from last year's Q2 as the company said that tech spending may be permanently higher due to the shift to hybrid work and the increase in people watching streaming content.

Same-store sales increased by 20%, topping expectations of 18.1%. For the full year, Best Buy sees revenue in between $51 billion and $52 billion and same-store sales growth between 9% and 11%. Both figures are above expectations and its previous guidance. The company also raised its outlook for the second half of the year. Previously, it had called for a decline in same-store sales but now anticipates somewhere in between 0 to 3% increase in same-store sales. It attributed the wide range to uncertainty due to the pandemic.

Online sales declined by 28.1% compared to last year which was expected given the pandemic caused a massive surge in tech sales and e-commerce. Over a two-year period, online sales remain materially higher, and operating income is up by more than 100%.

In a statement, CEO Corie Barry said, "Over the longer term, we are fundamentally in a stronger position than we expected just two years ago. There has been a dramatic and structural increase in the need for technology." Essentially, the company believes that its total market size of people who buy electronics has permanently expanded due to the pandemic, and these people will have a greater appetite for upgrading and staying current with the latest technology.

The company also attributed its strong report to factors like strong consumer spending, government stimulus, and higher wages and levels of savings.

Stock Price Outlook

Investors are clearly taking profits into this strength even though the report was impressive by many measures. It's possible that both things are true - the company is correct in that the pandemic and tech adoption has caused its total market size to increase and the market is right in that the company's sales might be peaking in the short term.

For investors who believe the market is incorrect, Best Buy shares present a tremendous opportunity with a 12.4 P/E ratio and 2.6% dividend yield. However, it's likely that the market is pricing in a deceleration in sales and earnings over the next year.