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.

Our BEST stock idea for 2016 - FREE!

Our top analysts have recently selected their TOP stock idea for 2016, and with share prices falling, it could be the BEST time to buy! This relatively unknown technology share is growing rapidly and offers a fat, fully franked dividend! Best of all: their top stock idea for 2016 is yours FREE! Just click here, enter your email address and claim your free report - no payment or credit card required!

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.

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.