One big reason why JB Hi-Fi Limited could still be a buy

Credit: Peter Heath

Earlier this year, shares in leading retailer JB Hi-Fi Limited (ASX: JBH) hit an all-time high of $23.94.

For long-term investors the share price appreciation has been spectacular. Just 10 years ago the stock was selling for less than $5 a share, while back in late 2003 the shares were trading around the $2 mark!

Inclusive of dividends, returns have of course been even better. The 10-year total shareholder return is 21.7% per annum.

While it will undoubtedly be difficult for JB Hi-Fi to put in a repeat performance over the next 10 years, there are reasons to remain positive on the stock.

Here’s one big reason why JB Hi-Fi could be worth buying…

For the 12 months ending June 2015, JB Hi-Fi’s Australian division recorded sales of nearly $3.5 billion and earnings before interest and tax (EBIT) of $199 million.

In comparison, Dick Smith Holdings Ltd (ASX: DSH) had total sales of $1.1 billion and reported EBIT of $63 million from its Australian division. While some investors will certainly question the group’s actual profitability considering Dick Smith is now in administration, there is less doubt surrounding the sales line.

Importantly, because Dick Smith’s receivers have announced the closure of all stores due to the sales process not resulting in any acceptable offers, businesses including JB Hi-Fi and Harvey Norman Holdings Limited (ASX: HVN) find themselves facing one less competitor in the market.

While JB Hi-Fi’s Australian operations were roughly three times larger than Dick Smith’s last financial year, Dick Smith’s share of the market was still considerable none-the-less.

JB Hi-Fi’s management will almost certainly be keen to capture a significant proportion of Dick Smith’s $1.1 billion customer base.

Should JB Hi-Fi be successful in this endeavour, then this would make for a very significant growth spurt.

Of course, this $1.1 billion in sales won’t be handed to JB Hi-Fi on a plate. Competitors such as Harvey Norman will also be vying to attract ex-Dick Smith customers too.

Even if JB Hi-Fi only manages to capture 15% of Dick Smith’s customers’ spend, this would still add almost 5% sales growth to the top line.


Find Out Why These 3 Blue Chip Shares Look Set to Soar in 2016

Discover The Motley Fool's top 3 blue chips for 2016. These 3 'new breed' shares pay fully franked dividends AND offer the very real prospect of significant capital appreciation. Simply click here to gain access to this comprehensive FREE investment report.

No credit card required.

Motley Fool contributor Tim McArthur 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. 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.