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Are ASX 200 retail shares like JB Hi-Fi overvalued?

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The JB Hi-Fi Limited (ASX: JBH) share price has been amongst the ASX 200 retail shares rocketing higher in 2020.

While fears over the coronavirus pandemic sparked the February/March bear market, strong government stimulus measures, together with a surge in online shopping, have sparked the recovery for many retail shares.

In fact, the JB Hi-Fi share price has rocketed 14.3% higher this year and is sitting just shy of its all-time high.

While that seems logical given strong sales in early 2020, let’s rewind the clock. If you had told me in February that ASX retail shares were going to outperform in 2020, there’s no way I would have believed you.

Afterall, this was when we were seeing more voluntary administrations in the sector including big names like Jeanswest. So, is the recent ASX retail rally a flash in the pan or is it time to invest?

Why ASX 200 retail shares are surging

JB Hi-Fi is definitely something of a special case. The nature of COVID-19 restrictions has meant more Aussies have been forced to work from home. This triggered a spending spree on home electronics and accessories, therefore boosting sales.

However, JB Hi-Fi isn’t the only ASX retail share that’s been climbing recently. Although being down for the year, the Super Retail Group Ltd (ASX: SUL) share price has rocketed nearly 140% since 19 March.

That’s despite the group’s brands, which include Supercheap Auto, Macpac, BCF and Rebel Sport, having no obvious relationship with the work from home trend.

I think one big contributing factor here has been the government stimulus measures. Many Aussies have been receiving JobKeeper or JobSeeker and piling that cash into the economy. This has been good news for some retailers which have seen sales grow accordingly.

Will the strong share price growth continue?

The big question right now is what happens in September? That’s when many of the big stimulus measures are set to drop away and expose the economy to reality.

I believe there could be a lot of companies having been propped up over the last few months that may seriously struggle once the government stimulus dries up. 

It’s hard to see where potential share price growth will come from for the rest of the year. If we do see a ‘V-shaped’ recovery, then that could be the spark ASX retail shares need to climb higher.

However, according to an article by a leading fundie published in yesterday’s AFR, even ASX supermarket shares like Coles Group Ltd (ASX: COL) are set to struggle. The reason given was that it is likely the double digit growth recently experienced by many retailers has ‘pulled forward’ future growth. If this really is the case, it suggests the strong sales performances we have witnessed among some retailers in the COVID-19 environment are unsustainable longer term.

Foolish takeaway

There’s no doubt some ASX 200 retail shares have delivered for investors in 2020.  However, I think there are signs that the short-term gains may not be sustainable as a long-term trend.

I’m personally not looking to buy in at current prices with the looming uncertainty surrounding September/October this year. While supermarket shares and even some other areas of retail could offer defensive earnings, I’m not sure there’s great value in buying at current prices.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Super Retail Group Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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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