A recovery of the JB Hi-Fi Limited (ASX: JBH) share price could be reliant on a strong Christmas sales period.
Since reporting season a few months ago the JB Hi-Fi share price has fallen around 15%.
Rising interest rates could be one of the problems hurting the share value, but falling house prices could be the key problem. People experienced a positive wealth effect when their house price went up, so the opposite is likely happening as prices fall.
Indeed, the company recently gave a trading update for the first quarter of FY19. It said that total sales growth for the key JB Hi-Fi Australia chain was 5.3%, compared to growth of 8.1% in the prior year. Comparable same store sales growth was 3.4%, last year growth was 4.9%.
It's good that sales growth is still occurring, it's just that it isn't as much as retailers would like.
The next five days will be key for all retailers including Wesfarmers Ltd (ASX: WES), Woolworths Group Ltd (ASX: WOW) and Coles Group Limited (ASX: COL).
Pre-Christmas discounting has been limited, but Citigroup head of research Craig Woolford is quoted by the AFR as saying that post-Christmas sales could fizzle because many shoppers took up the Black Friday and Cyber Monday sales, which brought forward sales to November.
One of the most attractive things about JB Hi-Fi is its attractive grossed-up dividend yield of 8.5%. Plus, the electronics retailer is now only trading at 11x FY19's estimated earnings.
If JB Hi-Fi can keep growing revenue and its bottom-line profit then it could be a market-beater from here. However, with Amazon looming over its shoulder I remain wary of buying JB Hi-Fi shares – I think there are growth shares out there where the potential rewards are higher and the risks are lower.
