Why the JB Hi-Fi share price is up 17% in the past month

Credit: Peter Heath

JB Hi-Fi Limited (ASX: JBH) has seen its share price rocket up 16.6% in the past month to above $21, compared to the 0.6% fall in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) over the same period.

The consumer electronics retailer has mainly benefitted from the rapid demise of rival Dick Smith Holdings Ltd (ASX: DSH), which went into voluntary administration earlier this week.

Dick Smith had failed to gain the support of its banking syndicate and was unable to secure additional debt funding to prop the company up. The company reported that sales and cash generation in December were below management expectations – despite a monster discount sale with some items priced at up to 70% off.

Analysts suggest Dick Smith is unlikely to survive in its current format, and could close more than 100 of its 395 stores. Since its IPO, Dick Smith had rolled out an additional 72 stores, but clearly that was a mistake with many likely unprofitable. That could mean an additional $200 million in sales and $20 million in additional earnings for JB Hi-Fi according to analysts.

In stark contrast to Dick Smith’s rollout of stores, JB Hi-Fi has been reducing the number of its regular consumer electronics stores, converting many to HOME stores, which sell appliances and white goods. With a lower cost of doing business and what appears to be a much better retailing strategy, JB Hi-Fi has clearly had the wood over Dick Smith for years.

JB Hi-Fi has confounded critics who say the bricks-and-mortar consumer electronics business is dead, managing to not only remain competitive but continue to post impressive sales and earnings per share growth over the past decade.

At the current price of around $21, JB Hi-Fi shares are trading on a prospective P/E ratio of around 14.7x and paying a dividend yield of around 4.3%, fully franked. That appears to be a decent price for one of Australia’s best consumer electronics retailers.

Don't miss your chance to "invest like a Pro"...

Motley Fool Pro -- our most comprehensive and innovative ASX investment service -- will reopen for a brief time, to accept new members. That means you've got the chance to follow along as one top investor puts $1,000,000 of The Motley Fool's own money to work...all in ASX stocks. And you're invited to watch everything that goes into our decision -- 100% FREE! We've dubbed this innovative project, Motley Fool Pro. Click here to step inside for an exclusive look around - it's FREE!

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.