3 BIG reasons to hold onto your JB Hi-Fi Limited shares

Quite simply, buy quality stocks when share prices are down to get higher returns when they rise again.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Electronics retailer and ASX 200 Index (ASX: XJO) stock, JB Hi-Fi Limited (ASX: JBH), has grown alongside such other great retailers as Harvey Norman Holdings Limited (ASX: HVN) to become a household name for computers, TVs and mobile devices. When retail trade began picking up in 2012, the stock quickly rose from about $10 in early 2013 to around $23 within about ten months, rewarding shareholders with a 100%+ share price gain.

Since then it has been trailing down, now around $19.15 a share, so is the fizz gone? More recent retailing news is downbeat and not encouraging, so traders are probably giving the whole sector more of a pass until stronger sales results come out. I believe this is actually a time when Foolish investors should be looking further down the track several years from now. The economy may not be booming, yet we're very far from anything like the GFC.

You make your best returns when you buy good quality companies at low prices and then sit back for the long-term growth to pay you for your patience. Here are three reasons why holding onto your JB Hi-Fi shares will pay you back later and you'll be patting yourself on the back for your savvy investing decision.

1) Company sales resilient to weaker general retail trade.

While other companies like Super Retail Group Ltd (ASX: SUL) and department store Myer Holdings Ltd (ASX: MYR) are showing weaker sales, JB Hi-Fi just updated the market last month, reaffirming its earlier earnings guidance for FY 2014 to be 8.3% – 10.8% up on the prior year. One plus is the growing housing market which can drive electronics and appliance sales.

2) Still in growth phase with more stores coming.

Its JB Hi-Fi HOME store format rollout is ahead of schedule and showing very promising results. These stores sell white goods and household appliances in addition to the electronics it is well known for. It expects to have 22 HOME stores in FY 2014 and by FY 2016 that number could be up to about 75. With strong initial comparable sales growth for the new stores, earnings over the next few years are forecast to be rising thanks partly to this expansion.

3) Uptrend of return on equity shows management is keeping up good work.

One of the signs of deft management performing well is an increase in return on equity. That shows they are squeezing more value out of every dollar earned. The company's ROE is regularly over 40%, which is fantastic by itself, but the long-term trend is up. Companies with high ROE can be long-term high performers, which drives earnings and share prices up over the years.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »