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What has happened to the JB Hi-Fi Limited share price?

The JB Hi-Fi Limited (ASX: JBH) share price has delivered stunning gains for long-term holders. Indeed, the JBH share price has risen almost 140% over the past five years and 230% since March 2007. Notably, those returns do not include dividends paid out during those periods.

But the JB Hi-Fi share price has stumbled over the past six months. Indeed, the shares peaked at $31.20 in September and have since retreated 19% to a near-seven-month low of $25.15. So, what has happened to the JB Hi-Fi share price, and does its fall represent a good opportunity to load up?

What’s Happened?

JB Hi-Fi is a widely-recognised retailer of electronic goods that has traditionally relied on new store openings and same-store-sales growth to expand its business. However, it deviated from that path last year when it announced that it would acquire its rival The Good Guys, thus significantly boosting its share of the Australian electronics market.

Source: JB Hi-Fi Presentation (September 2016)

Source: JB Hi-Fi Presentation (September 2016)

Although the market initially responded positively to this move, it seems that investors have begun questioning the acquisition. To begin with, JB Hi-Fi doesn’t have a long track record for making large acquisitions so there will be question marks over management’s ability to integrate The Good Guys into the business, while there are also cultural differences between the groups. Meanwhile, the near-term synergies to be achieved from the acquisition are lower than first anticipated with both businesses maintaining separate headquarters (notably, this may be a smart move, at least to begin with, to ensure the cultural differences do not interfere with the integration process).

Investors may also (justifiably) be concerned about the potential impact Amazon.com (NASDAQ: AMZN) may have on JB Hi-Fi’s business when it eventually expands its presence in Australia. Amazon has been notorious for crushing the margins of its rivals with electronics goods deemed to be one of the most likely set of products to be purchased from the site (according to The Australian Financial Review, which cited a Neilson survey conducted earlier this year):

Source: AFR

Source: AFR

Is it worth your time?

JB Hi-Fi is a very good retailer. Indeed, its Australian stores (excluding The Good Guys) enjoyed an 11.7% sales boost during the first half of the year – with comparable sales up 8.7% — while total sales for the group were up 23.6%. Its underlying net profit rose even more, up 31.7% to $125.4 million for the period.

What’s more, the pullback in JB Hi-Fi’s share price has made it more attractive. According to analyst estimates, as polled by Yahoo! Finance, its shares are trading on a forward price-earnings multiple of 13.5x, compared to 14.3x for Harvey Norman Holdings Limited (ASX: HVN) and 17.8x for Baby Bunting Group Ltd (ASX: BBN). Notably, Baby Bunting’s share price has also shed nearly 40% over the past seven months or so.

Investors do need to bear in mind the risk of its recent acquisition of The Good Guys not working in its favour; the threat posed by Amazon.com and the threat of a potential economic slowdown in Australia. Indeed, such an event would likely impact most retailers. If (and only if) investors are comfortable with each of those risks, then JB Hi-Fi could be worth a closer look today.

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Amazon. Motley Fool contributor Ryan Newman owns shares of Amazon. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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