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Is now the right time to buy JB Hi-Fi Limited?

Almost two weeks ago the S&P/ASX 200 Index (ASX: XJO) (Index: ^AXJO) finally hit a trough and rebounded after declining about 9% – just on the edge of being a full correction. Foolish readers were encouraged not to worry about a fall, but rather see it as a discount sale.

Sifting through the stocks that hit new lows recently, there were a number of big names that could have been in bargain territory. One of them especially caught my attention. Would it be good to buy, sell or hold JB Hi-Fi Limited (ASX: JBH)?

The specialty retailer is just above its $14.35 low at an 11 price-earnings ratio and sporting a very attractive 5.8% yield fully franked. It has been sold off heavily since almost touching $20 a share in early August.

Retail trade making a bottom

Retailing in general may not be roaring, however, it may have struck a bottom, based on monthly trend estimates from the Australian Bureau of Statistics. April and May seemed to be low points and the last several months have been holding up better.

retail trade monthly trend chart










Source: ABS

New HOME format store making stronger sales

What JB Hi-Fi has going for it is are its new JB Hi-Fi HOME format stores. They had strong same store sales in FY 2014 and accounted for a lot of the 4.8% group revenue growth. Right now there are about 22 HOME stores, but the company plans to increase that by 30 with new and converted stores in FY 2015, so I expect to see sales revenue rise again.

Earnings growth and share price

I think the stock could sag a little more before new sales results come out, but it should be one of the stronger retailers to rebound when shoppers return to the stores in the near-term.

The stock is priced at a historically low PE ratio. Consensus forecasts indicate only an average 6.3% annual earnings growth rate for the next two years. However, in FY 2014, the company raised earnings 10.3% in a difficult retail environment, so it could have some surprises for us in the first half of FY 2015. One thing to look for is a sales bump up from the release of new Apple products from here to the Christmas sales season.

If you have JB Hi-Fi shares now, I would hold them. For new investors, it may pay to wait just a bit more for a strong bottom to form – possibly around $14 a share. Retail isn’t great right now, but as investors we should build positions when the market is weak.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.