Here’s why the JB Hi-Fi Limited share price dropped lower today

The JB Hi-Fi Limited (ASX: JBH) share price has been one of the worst performers on the Australian share market this morning.

At the time of writing the retailer’s shares are down 3% to $22.37.

Why has it fallen?

With no news out of the retailer, today’s decline is likely to be attributable to a research note out of investment bank Credit Suisse.

According to the note its analysts have reiterated the underperform rating on its shares and slashed their price target from $26.49 to $18.69.

Credit Suisse believes that as electronics retailing moves increasingly online, JB Hi-Fi and rival Harvey Norman Holdings Limited (ASX: HVN) will face a number of headwinds.

These include increased competition, pressure on delivery fees, and higher promotional expenses.

Furthermore, the investment bank feels that the growth of its store network is over for the time being and believes the company could close underperforming stores.

Should you buy the dip?

While the impending arrival and subsequent impact of Amazon in Australia could have been overplayed, I think the prudent thing to do is to stay clear of retailers like JB Hi-Fi and Harvey Norman.

While some may point to Best Buy in the United States as proof that electronics retailers can succeed alongside Amazon, I think this comparison is slightly misleading.

Best Buy’s share price may have recently hit an all-time high, but sales and operating profit are still down greatly over the last decade.

Its earnings per share may have risen over the last decade but that is purely down to its ability to buyback almost a third of its shares outstanding during this time, thus artificially boosting its earnings per share.

Unfortunately I doubt that JB Hi-Fi and Harvey Norman would have sufficient cash reserves to be able to do this.

So instead of risking your money in JB Hi-Fi or Harvey Norman I would suggest investors snap up these high-flying growth shares. Not only are they Amazon-proof, but they are at the top of their games right now and growing like wildfire.

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Amazon. 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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