Why investors should know about JB Hi-Fi Limited’s new growth plan

Next phase in store creation will capitalise on rising housing market.

| 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

Investing in retailing stocks has its ups and downs. When the economy is down, people are tight-fisted with their money and they keep their shopping down to a minimum like groceries and everyday household items. Those are the times when you get to see which stocks have focused management and plans to grow their way through a downturn.

The ones that survive the best with thicker margins are usually the ones that take off strongly when the economy is on the mend.

The other good thing about retail stocks is that you don’t need a degree in a science or high finance to go through a company report and decipher what is going right or wrong with a company. If something doesn’t sell, you can tell why pretty quickly. You can even do your own market research and see if you would buy from their stores, much less buy stock in them.

When a company like JB Hi-Fi Limited (ASX: JBH) has a good formula for growth, you want to stick with it. Revenue has increased annually for the past 10 years and it was only in 2012 that net underlying profit dipped down.

First half FY2014 sales saw further increases and net profit after tax was up 10%. Also, during this period it began rolling out its new store format that included home appliances and white goods along with its regular electronics goods.

It wants to see about 50 of its new HOME format stores by the end of FY2016 generating $5 million in sales each for around $250 million in projected sales.

This bigger format of store will start to overlap with other retailers in this space such as Harvey Norman Holdings Limited (ASX: HVN) or privately held The Good Guys, so there will be competition.

With consumer spending improving, people will want to buy those higher priced household items like TVs, computers and mobile devices, which will improve margins as well as revenues.

Its $19.40 share price is down from a $23 high set back in November last year. That 15.6% difference is similar to a market correction and not really that bearish. Its PE is 15.5, in the middle of its historical PE range. Its dividend yield is 3.9%.

Foolish takeaway

Apart from growing its store chain, it is expanding the product range to take advantage of the expected rise in discretionary spending that usually coincides with a rising property market and low interest rates. That move will help keep up its track record of rising profits and that is why I like the company.

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

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 »

asx share price competitions represented by businessmen arm wrestling
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 »

person reading news on mobile phone
⏸️ 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 »