Investors that started the year equal weight JB Hi-Fi Limited (ASX: JBH) and Echo Entertainment Group Ltd (ASX: EGP) would currently be up around 19%, a great return, but they may still feel a little disappointed with the performance following a shocking year by JB Hi-Fi.
JB Hi-Fi
JB Hi-Fi's operational performance has been mediocre and lacked the growth expected by investors and analysts following a solid 2013 financial year. An improvement in earnings growth over the last quarter saw the share price jump 9% in a day in October, however some were still concerned that same-store sales are down 2.1% in the year to date.
The result for investors has been a 30% fall in the share price from $22 to today's price of $15.50, however analysts believe JB's is essentially on sale. Earnings in the current quarter are expected to benefit from a bumper Christmas period, but over the longer term structural headwinds could be a concern.
This sentiment is echoed by analysts when discussing Echo Entertainment Group.
Echo Entertainment
Echo had a terrible 2013 with falling like-for-like revenue and income, but the sale of some underperforming assets and a renewed push to boost turnover at the group's The Star flagship casino in Sydney has worked wonders.
Excited investors pushed the share price up 6.2% on October 30 following the release of an extremely promising first-half 2015 outlook. Echo predicted that normalised earnings before interest, tax, depreciation and amortisation would be between $245 million and $260 million for the six months to December 2014, a massive improvement on last year.
Long-suffering investors have been rewarded by a 67% share price rise over the last year, and many analysts believe that the medium term outlook is good.
Time to Buy?
I'm of the opinion that JB Hi-Fi represents a better buy than Echo at the current prices. Echo trades on a trailing PE ratio of 30, compared with just 12 for JB Hi-Fi, however both companies face long-term headwinds of increased competition.
The investment case of both comes down to how well they can adapt to their changing industries. Internet-based competitors are present in the markets and Echo is also facing stiff competition from local and international rivals in its key Sydney and Brisbane markets.
JB Hi-Fi appears cheap to me, however this is based on the company being able to grow same-store sales into the future. This is currently up in the air so I would prefer to invest my money into a surer bet.
