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Why JB Hi-Fi shares rose 84% in 2019

The JB Hi-Fi Limited (ASX: JBH) share price was a surprise performer last year. JB Hi-Fi shares started 2019 at $20.46 but ended the year at $37.67 – a yearly gain of 84.48%. Since the New Year, JB Hi-Fi shares have continued to rise and at the time of writing are trading at $41.15, which is just below its all-time high of $41.25.

But wait, JB Hi-Fi is a bricks-and-mortar retail store chain. That’s supposed to be a sunset industry, right? One of those ‘old-timer’, pre-internet, just-waiting-to-be-smashed-by-Amazon type companies that no-one would bother investing in, right?

Well, clearly that’s what investors were thinking this time last year. And in fact, many investors were still thinking it for most of 2019. JB Hi-Fi was a frequent 2019 guest on the ’10 Most Shorted Shares’ updates that my Foolish colleague James Mickleboro gives us most Mondays. In fact, the company even made the list this week – with a total short position of 11.8%.

But JB has displayed a remarkable ability to confound its critics at every turn.

How JB Hi-Fi keeps winning

JB’s traditional offerings like CDs, gaming and electronics were (probably accurately) deemed to be high-risk goods to be selling in our modern age and so today the company offers everything from vinyl records and laptops to mobile phones and TVs.

The company has also decisively moved into the white goods market, offering appliances like refrigerators, washing machines and other household durables. JB Hi-Fi moved into these markets years ago when other retailers didn’t see the threats from the rise of online shopping as clearly – a move that is paying dividends today. JB also acquired fellow retail chain The Good Guys back in 2016, which has also helped the company to consolidate sales and market share.

Just last financial year (FY19), the company delivered some solid results. Net profits were up 7.1% to $249.8 million while total sales rose 3.5% to $7.1 billion. Even more encouraging was online sales, which saw a 23% increase on the prior year’s numbers.

Even after last year’s impressive run-up, JB Hi-Fi shares only trade on an earnings multiple of 19.13 today – just above the market average. At this pricing, JB Hi-Fi shares offer a 3.45% dividend, which comes fully franked.

Foolish takeaway

JB has successfully managed to carve out a niche in our modern era of online shopping supremacy. It’s this company’s agility, strong branding and ability to fend off all forms of competition that has led to a turnaround in sentiment and such a strong year of returns in 2019.

Who knows what challenges 2020 will bring for JB Hi-Fi, but if its past is anything to go by, I wouldn’t be too worried.

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Motley Fool contributor Sebastian Bowen has no position in any of the 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 Scott Phillips.