Best Buy Co., Inc. (NYSE:BBY) has had a tremendous year, increasing 267% and beating the S&P 500 by 26% year-to-date, but with increased pressure on gross margins and concerns about comps, analysts are warning investors to keep a close eye on the stock, even if they’re not quite ready to recommend selling.

Best Buy Co., Inc. (NYSE:BBY) has just posted its best comps (same-store sales) in 13 months, but its stock price has dropped 8% as the 1.7% increase was below expectations (about 2%). On top of that, gross margins fell 60 basis points in the third quarter, and now management has warned that the coming holiday season will be more promotional and less profitable, with gross margins falling by 80 or 90 bp more.

Best Buy will need to improve margins and comps

“Pressure points on the gross margin include intensifying pricing pressures in the industry, less profitable sales mix in mobility, rising warranty costs, and reduced economics from its private label credit card,” explains Raymond James analyst Dan Wewer. Wewer thinks that Best Buy will need to improve margins and comps if it’s going to keep outperforming the market, neither of which he considers likely, rating the stock as Market Perform.

Stifel analyst David Schick paints a similar picture, but he’s more optimistic about the company’s potential, rating it a Buy and setting a price target of $48. The two main differences are that Schick expects Best Buy Co., Inc. (NYSE:BBY) to initiate buybacks next quarter, and he sees the potential to improve comps by selling some unproductive international stores.

“We think folks may be forgetting that BBY should and could sell their China and/or Mexico businesses, which could grow cash and shrink operating losses,” writes Schick. International comp was -6.4% overall, and getting rid of it would give the company’s numbers an immediate boost while freeing up some cash, possibly for buybacks.

Online sales are up

Schick also points out that online sales are up 15.5% year on year, and that Best Buy Co., Inc. (NYSE:BBY) has made efforts to improve its site’s functionality so the company can compete with, Inc. (NASDAQ:AMZN) directly. It’s also incorporating its online presence into retail locations by letting customers place online orders while at the store (in case an item isn’t in stock) and letting online customers have merchandise shipped from nearby stores.