Is JB Hi-Fi Limited a buy?

The Australian retail sector has experienced difficult times recently, however can JB Hi-Fi buck the trend?

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JB Hi-Fi Limited (ASX: JBH) recently re-affirmed FY14 net profit guidance of $126-129 million. This is a strong result considering the recent spate of downgrades by Australian retailers following the May Federal Budget. However, the company’s sales did slow in the second half of FY14, up only 3%, compared to previous guidance of between 5-9%. So what does the future hold for JB Hi-Fi?

I expect the share price of JB Hi-Fi will perform well over the next two years as a result of the following:

1) Retail spending should improve in the first half of FY15 as consumers gain more confidence as negative sentiment from the Budget becomes a distant memory.

2) The company plans to open another 30 stores in the medium term across Australia and New Zealand, providing further sales growth.

3) JB Home is set to grow earnings at a solid rate. The Australian home appliance industry is a $4.5 billion industry. JB Hi-Fi currently holds less than 1% of this market and it therefore represents a large growth opportunity. One analyst has predicted that the company may be able to obtain a 9% share of the home appliance market by 2020, given the company’s history, this appears very achievable.

4) A lower Australian dollar will reduce overseas and online competition. While predicting exchange rates is always difficult, many economists believe the Australian dollar is overvalued.

JB Hi-Fi looks good, but this stock looks even better.

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Motley Fool contributor Bradley Murphy does not own shares in any company mentioned in this article.

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