Should you buy Dick Smith Holdings Ltd at today’s share price?

Credit: hnnbz

The Dick Smith Holdings Ltd (ASX: DSH) share price resumed its downwards momentum on Tuesday, sliding another 8.2% after falling 12% over the previous three sessions. The shares closed at 33.5 cents for the day after hitting a low of 32.5 cents.

Shares of the speciality electronics retailer were slammed 58% on Monday last week after the group announced a $60 million writedown to inventories. As the inventory review has not concluded, further impairments may be required while management was also unable to reaffirm its profit guidance previously provided.

While that is never something shareholders want to read, it’s even worse coming from a retailer leading into the all-important Christmas period. The company said: “We remain cautious on the outlook for the Christmas trading period.”

Dick Smith made its return to the ASX in December 2013 at $2.20 per share, giving it a market value north of $500 million. The shares traded flat for the next 18 months or so but have fallen sharply since June this year. They’re now trading for 33.5 cents, down 85% in that time.

Should you buy?

While some analysts have suggested now could be a great time to buy shares of Dick Smith, others have cautioned that there could still be worse to come. Although the shares might be 85% cheaper now than they were in June, investors should remember it’s still possible to lose 100% of their investment at today’s share price.

What investors could consider taking advantage of instead is a fall in JB Hi-Fi Limited’s (ASX: JBH) share price. JB Hi-Fi’s shares have come under pressure upon fears that a fire-sale from Dick Smith could result in margin pressures across the entire industry through the Christmas period. JB Hi-Fi’s share price is now trading for $17.87, down nearly 10% from a recent high of $19.82.

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Motley Fool contributor Ryan Newman 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. You can follow Ryan on Twitter @ASXvalueinvest.

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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