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Is JB Hi-Fi the worst short on the S&P/ ASX 200?

The JB Hi-Fi Limited (ASX: JBH) share price is hurting short sellers again today after the electronic goods retailer posted another strong trading update.

It delivered group same-store sales growth of 3.7% for the quarter ending September 30 2019. While total sales grew 4.7% for the quarter. This is a decent result given stagnating economic growth locally and regular headlines about retail conditions being tough. 

JB Hi-Fi is also sticking to guidance for full year sales around $7.25 billion, with ‘JB Hi-Fi Australia’ expected to contribute $4.84 billion and The Good Guys $2.18 billion. 

Supporting JB Hi-Fi’s long-term track record of growth is what appears to be a dominant market position and strong online sales growth. This makes the fact that short sellers consistently bet against it all the more curious. As at October 12 it had 12% of its outstanding shares shorted. 

Given shares are up 6.5% to a record high of $36.27 today and up around 75% over just 2019 every single short seller will be deep underwater. JB Hi-Fi also pays big dividends that the short sellers will be on the hook to meet as well.

As such you could say it looks the worst short among those heavily bet against on the S&P/ ASX 200 (ASX: XJO)

In fairness JB Hi-Fi carries some debt and faces competition from discounters like or Ltd (ASX: KGN). However, given its track record, modest valuation and big yield I would not bet against this business going higher. It’s also no secret that despite the hype, Amazon’s arrival in Australia has been a damp squib on the back of underinvestment. 

Professional hedge fund managers are far from perfect and can make mistakes. For example one portfolio manager at a blue-chip asset manager I worked at in 2008/09 placed increasingly large options bets against markets falling right through the worst of the GFC in late 2008! Needless to say, he did not last long in his job. 

If short sellers do throw in the towel on JB Hi-Fi the upward pressure on the share price will amplify as significant buyers come onto the market for more stock. 

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Tom Richardson owns shares of Amazon. 

You can find Tom on Twitter @tommyr345

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon. The Motley Fool Australia has recommended Amazon and ltd. 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 Scott Phillips.

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