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.
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.
