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Should you buy JB Hi-Fi Limited at this share price?

Credit: Peter Heath

Shares of JB Hi-Fi Limited (ASX: JBH) have been on a tear over the last month or so, and even hit their highest price since the Global Financial Crisis this morning at $23.11. That comes despite the turbulent conditions engulfing the broader S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) since the beginning of the year.

As Australia’s leading specialty electronics retailer, JB Hi-Fi is a name that is likely familiar to most Australians. Since it listed its shares on the ASX in October 2003, the company has consistently grown sales and earnings [with only two declines in net profit during that time – in financial year 2011 (FY11) and FY12, according to Capital IQ], while dividends per share have also grown strongly.

While JB Hi-Fi’s success and popularity amongst consumers is likely one of the reasons behind the recent collapse of rival Dick Smith Holdings Ltd (ASX: DSH), the company should also benefit from Dick Smith’s demise in the form of higher sales. According to The Sydney Morning Herald, analysts from Morgan Stanley believe both JB Hi-Fi and Harvey Norman Holdings Limited (ASX: HVN) could pick up $200 million each as a result.

Source: Sydney Morning Herald, data from Morgan Stanley Research

Source: Sydney Morning Herald, data from Morgan Stanley Research

The loss of a major competitor in the space could also result in improved bargaining positions with suppliers over time.

It’s certainly worth acknowledging that investing in the retail sector is not without its risks. You only need to look as far as Myer Holdings Ltd (ASX: MYR) or Godfreys Group Ltd (ASX: GFY). Both are retailers who have at least partially lost their relevancy as a result of rising internet sales or changing consumer preferences.

But while that might be the case, JB Hi-Fi has a strong track record of changing with the times which should give investors some confidence in the business. For instance, it moved from hi-fis to car stereos to music CDs and movie DVDs. Even those are now going out of trend as a result of streaming via the internet, but now it’s selling tablets, vinyl records and even remote controlled drones to pick up the slack.

Source: JB Hi-Fi online store

JB Hi-Fi is also making a big push into the white-goods market through its new ‘HOME’ format stores, while it is also expanding its offering of small appliances via its traditional stores. This could help attract customers away from Harvey Norman and other competitors as well, especially if it can keep its costs down and prices low.

JB Hi-Fi’s shares aren’t necessarily cheap right now, trading on a forward price-earnings ratio of roughly 16x, although they do offer investors a prospective 4.1% fully franked dividend yield. I believe it’s certainly worthy of further research, while it could also make for a decent long-term investment.

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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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