The JB Hi-Fi Limited (ASX: JBH) share price tumbled to a 52-week low of $36.69 last week.
The retailer has been hammered by external factors beyond its control which has put selling pressure on its shares.
At Wednesday's market close, JB Hi-Fi shares finished 0.41% lower to $39.37.
You may be wondering what's the best way to value a company in the current climate. Here's one way.
How do you value JB Hi-Fi shares?
A common way among investors to determine if an ASX share is cheap or expensive is to look at the price-to-earnings (P/E) ratio. This metric tells you how much the company is worth.
A P/E ratio can be broken down as the relationship between a company's share price and its earnings per share (EPS).
At the time of writing, JB Hi-Fi has a P/E ratio of 9.34. The formula to work out the P/E ratio is the current share price divided by EPS.
For context, JB Hi-Fi's peers, Harvey Norman Holdings Limited (ASX: HVN) and Kogan.com Ltd (ASX: KGN) hold a P/E ratio of 5.71 and 169.49, respectively.
Due to the similar market capitalisation compared to Harvey Norman, JB Hi-Fi shares are slightly on the more expensive side.
Essentially, what this means is that you are paying $9.34 for every dollar that JB Hi-Fi collects in earnings.
In addition, a P/E ratio shows how much growth can be expected when invested in a company.
For example, a high P/E ratio tells us that investors are happy to pay more per share than what the company is earning. This is extremely common with new market entrants that have the liquidity to pursue high growth opportunities.
On the other hand, a low P/E ratio is more suited to stable companies that have an established market share. It could also mean that its shares are trading at a bargain given the share price fall.
JB Hi-Fi share price summary
Since the start of May, the JB Hi-Fi share price has plummeted 25% on the back of weakened investor sentiment.
Soaring inflation levels mixed with rate hikes by the Reserve Bank of Australia have sent investors fleeing for safe-haven assets.
Shares in a retail environment are always the first to feel the impact of any economic downturn.
JB Hi-Fi has a market capitalisation of approximately $4.32 billion and has roughly 109.33 million shares on issue.
