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Should you buy JB Hi-Fi Limited at today’s share price?

Credit: Peter Heath

The JB Hi-Fi Limited (ASX: JBH) share price has come under significant selling pressure in recent weeks. Although it’s trading 1.1% higher at $18.07 today, the share price remains 8.8% below its recent high of $19.82 and 19.2% below its 52-week high of $22.37.

JB Hi-Fi is Australia’s leading specialty electronics retailer, specialising in items such as DVDs, CDs and games, together with gaming consoles, laptops and television sets. They’re also expanding into the white goods market through their rollout of their new ‘HOME’ format stores which has opened a new avenue for growth over the coming years.

While JB Hi-Fi’s future looks promising, its share price has been hammered recently. This is largely due to recent activity from its rival Dick Smith Holdings Ltd (ASX: DSH).

Dick Smith recently booked a major impairment on its inventories and said more writedowns were possible. It also said it was cautious leading into the Christmas trading period and would “continue to drive sales, maintaining flexibility on gross margin to reduce inventory and improve our net debt position.”

In other words, Dick Smith is happy to employ heavy discounting methods in the lead-up to Christmas to clear stock from the shelves, with many items likely to be sold at below cost. That’s great for consumers, but means Dick Smith’s rivals, namely JB Hi-Fi and Harvey Norman Holdings Limited (ASX: HVN), could have to take an axe to their own prices in order to compete.

That will impact margins during what is typically the busiest time of year for most retailers and the period where they generate enormous sales.

While this could have an impact on JB Hi-Fi in the near-term, investors could certainly look to take advantage in any further weakness in the retailer’s share price. The shares are currently trading on a price-earnings ratio of 12.7x forecast earnings and offer a 5.2% fully franked dividend yield. JB Hi-Fi is at very least worthy of a position on your watchlist.

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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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