It's just the nature of the market. A company announces higher earnings on better sales and… the market punishes it. If earnings expectations for the next 6-12 months aren't met or exceeded, investors sell off.
That's what happened with JB Hi-Fi Limited (ASX: JBH).
Why? Most likely because "everyone else" is doing it. Sometimes it's justified from poor performance, but it can also be the herd mentality driving the share price off the cliff. Foolish investors shouldn't pay much attention to this if the stock is a quality company.
A quick 5% – 10% sell-off is nothing more than a discount opportunity because we are looking at the long term. As I wrote previously about market fear and successful investing, investor fear can short-circuit potential gains in the long run.
Full year profit is up
The electronics retailer announced full year net profit was up 10.3%, toward the higher end of the company's expected range of 8.3% – 10.8% given in June. Retail trade may be weak, yet JB Hi-Fi has done much better than other retailers. Despite that, the stock was slammed – down about 10% over the past week.
The new HOME format is growing well
Its JB Hi-Fi HOME format stores are getting about 10% comparable sales growth and the company plans to open as many 75 of them by 2016. It has about 22 now and in FY 2015 will convert 26 existing stores over to the new format. The new format has white goods and home appliances as well, so the company can benefit from the growing housing market since people buy more electronics and appliances when buying new homes.
When retail trade picks up more, JB Hi-Fi should get a windfall from that also. Low interest rates will stimulate the economy eventually.
Dividends on the rise
The stock is priced at 13.8 times earnings, which is near the bottom of its past average PE range, so it is relatively cheap. The dividend yield is a very healthy 4.6% fully franked, after the recent share price fall.
In addition, the company will increase the full year dividend 16.7%, raising the dividend payout ratio from 60% to 65%. That is to reward patient shareholders as the store and earnings growth plans play out over the next several years.
