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JB Hi-Fi Limited: Is it time to buy?

What: Since the beginning of January this year the share price of JB Hi-Fi Limited (ASX: JBH) has soared around 18%. That’s spectacular when compared with the 6% fall in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) and even more so when compared with the disastrous performance experienced by its peer Dick Smith Holdings Ltd (ASX: DSH) which has seen its share price lose around 35% of its value.

So What: One of the biggest headwinds faced by retailers now is the significant move in the exchange rate which has occurred.

Whereas previously the Australian dollar was near parity with the US dollar and gave Australian-based retailers much more buying power for their goods, such as flat screen televisions and computers, which are generally purchased in US dollars. Now, however, with the Australian dollar weakening and some economists forecasting it could continue to keep falling towards the 60 cent level those headwinds could get even stronger.

Add to this foreign exchange rate issue the potential for the Australian economy to slow further and consumer spending is likely to remain subdued.

What now: Despite these concerns it is important – particularly in times of market volatility – to remain focused on underlying earnings and valuation. For the 12 months ending June 30, JB Hi-Fi reported a 4.8% increase in sales to $3.65 billion, a 5.1% rise in earnings before interest and tax (EBIT) to $201 million and a 6.4% increase in net profit after tax (NPAT) to $136.5 million. On a per share basis, earnings increased 7.4% to 137.9 cents per share (cps) and the full year dividend grew 7.1% to 90 cps.

In the current financial year, the group plans to open a further six stores, convert 16 standard stores to its new JB Hi-Fi Home format and is targeting total sales of around $3.85 billion. The update provided on July’s sales suggest sales growth is tracking to plan with management highlighting sales growth of 7.6% on the prior corresponding July.

With the share price up this morning to $18.59, the stock is currently trading on a trailing price-to-earnings ratio of 13.5 times and a fully franked dividend yield of 4.8% which looks appealing given the strong track record of this leading retailer.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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