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Is JB Hi-Fi Limited a buy at the current share price?

Credit: Peter Heath

In the last five trading sessions the shares of JB Hi-Fi Limited (ASX: JBH) have dropped lower by over 5%. Does this make this leading retailer a buy now?

Personally I would say no. Whilst there’s a lot to like about JB Hi-Fi, at the current price it is still a little too expensive to tempt me into making an investment.

At 17x estimated FY 2017 earnings according to CommSec, JB Hi-Fi’s shares are trading well ahead of their five-year average earnings multiple of just under 13x earnings.

It is also trading at a premium to its arch rival Harvey Norman Holdings Limited (ASX: HVN). Harvey Norman’s shares are changing hands at 15x estimated FY 2017 earnings at present. Another bonus with Harvey Norman is that it is expected to provide investors with a fully franked 5.5% dividend in the year ahead.

So of the two retailers I would be more inclined to invest in Harvey Norman today. But I wouldn’t necessarily rush into an investment in either retailer.

Although at this stage it is only speculation, there has been talk of ecommerce giant Amazon Inc opening up a full online retail store in Australia. As you might expect many are predicting that this would be a disaster for local retailers.

According to the Fairfax media, analysts at Citi have estimated that JB Hi-Fi could lose market share and see a drop in earnings of up to 23% if Amazon opened up in Australia. Harvey Norman isn’t far behind with a predicted 19% drop in earnings.

I feel it is fair to say that the market would not react well to a drop in earnings of this magnitude and we would likely see a sharp drop in their share prices as well.

Whilst at this stage it is only speculation, I feel it is inevitable that we will see Amazon here eventually. So for this reason I will focus on other areas of the market.

Instead of investing in JB Hi-Fi I would suggest investors take a look at investing in either of these rapidly growing shares today. Each has the potential to bolt higher in the months ahead if you ask me.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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