MENU

Is JB Hi-Fi a buy?

Consumer electronics retailers like JB Hi-Fi Limited (ASX :JBH) and Harvey Norman Holdings (ASX:HVN) are under immense pressure from online retailers, but there’s much to like about both businesses.

In the past few years, both retailers have been forced to cut their margins on electronic goods simply to compete against online stores. JB Hi-Fi also still sells music CDs and physical DVDs when music and movies can be obtained digitally through the likes of Apple’s iTunes and Amazon. With prices for DVDs and CDs falling, I imagine that JB Hi-Fi makes very little profit on each item.

As a result, the company is allocating less and less space in its stores for CDs and DVDs, instead looking for higher margin products like hardware.

After the digital TV revolution, TV prices have seen significant deflation, and most people now own at least one LCD or plasma flat screen TV, so sales will slow. TV sales will now return to the normal replacement cycle, adding further pressure on JB Hi-Fi.

However, JB Hi-Fi has several things going for it. It has very low costs of doing business, and therefore can maintain lower margins than most of its competitors. The evolution of consumer electronics continues, with smart TVs, new smart phones, tablets, e-readers, laptops, notebooks, sports cams, wi-fi enabled cameras and new Sony and Microsoft gaming consoles along with a plethora of new games.

JB Hi-Fi also has many if its stores inside shopping malls, so benefits from passing foot traffic and impulse buys. The company continues to roll out new stores, and is a number of years away from reaching its ultimate target. JB Hi-Fi has also expanded into new areas, including an investment in a company that provides IT products and services to 400 schools in Victoria as well as corporate clients. The company sees this as a $500 million opportunity.

And just last year, JB Hi-Fi expanded into white goods and consumer appliances, stepping into territory normally commanded by Harvey Norman and discount retailers like Big-W and K-Mart. Add in a move into musical instruments, DJ gear, streaming music, e-books and a soon-to-be-released streaming video service and JB Hi-Fi has plenty of levers to deliver growth. Its online store has plenty of room to grow, representing just 2% of total sales.

The falling Australian dollar should also help the company, with offshore online purchases now at least 10% more expensive. Of course, JB Hi-Fi will also face higher costs on its imports, but the playing ground has levelled out somewhat.

Foolish takeaway

At its most recent results, the company indicated that it was experiencing positive growth in same store sales, after a lack lustre period of negative growth. Currently trading on a P/E ratio of around 14, and paying a fully franked dividend yield of over 4%, JB Hi-Fi could be one for the watchlist.

In the market for high yielding ASX shares? Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading


Motley Fool writer/analyst Mike King owns shares in JB Hi-Fi.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.