The JB Hi-Fi Limited (ASX: JBH) share price has improved by 11% during the month of July thus far.
That's more than double the performance of the S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) which has gained 5.4% over the same timeframe.
This is pretty impressive given rising inflation (now at 6.1% according to new data today) and interest rates are risk factors for ASX retail shares.
Falling property prices are also a risk because they degrade what's known as the 'wealth effect'. When the value of our homes — usually our biggest assets — is rising, we feel wealthier and this translates into more consumer spending. Like buying new electronics or DVD box sets at JB Hi-Fi.
Latest CoreLogic data shows a decline in Australian dwelling values in May and June. Sydney house prices are down 2.4% and Melbourne house prices are down 2.1% in the year to date. That might not sound like much but on a $2 million residence, that's a $40,000-plus drop in value.
How JB Hi-Fi performed in FY22
As an article in today's Australian Financial Review (AFR) points out, JB Hi-Fi eventually became a COVID-19 winner after the initial market crash when pretty much every ASX share cratered.
People then went on to buy lots of new things for their homes, to enable them to work and to keep themselves entertained during lockdowns.
The JB Hi-Fi share price reached an all-time high of $55.85 in March as a result. The wealth effect likely helped this price surge as well, with dwelling values up 18.2% over the 12 months to 31 March.
Then the market lost confidence, as it did in many ASX shares, and "a third of its sharemarket value vanished in less than three months as many investors decided this would be as good as it gets, and the dream run may be over," according to the article.
The share price seemed to find a floor at about $37 in mid-June. Since then, it has risen to $42.92 today.
On 19 July, JB Hi-Fi released its preliminary results for FY22. As my Fool colleague James reported, JB Hi-Fi had a strong fourth quarter which led to record sales and earnings for the full financial year.
Sales were up 3.5% to $9,232 million, EBIT was up 6.9% to $794.6 million, and net profit after tax (NPAT) was up 7.7% to $544.9 million.
What's next for the JB Hi-Fi share price?
AFR surveyed a bunch of brokers to get their views on where the share price could go from here and why.
Citi analyst Adrian Lemme has a buy rating on JB Hi-Fi, but has reduced his 12-month share price target from $52 to $47.
According to the article:
Lemme said JB Hi-Fi was a strong operator and well-positioned to withstand the drag from increasing cost-of-living pressures in households. The discretionary retailing sector was "unloved" and on a risk-reward basis JB Hi- Fi was looking more favourable for investors after its share price dropped by one third between March 30 and mid-June, suggesting investors had already factored in a tougher outlook.
JP Morgan analyst Bryan Raymond has a neutral rating on JB Hi-Fi and a share price target of $44.
UBS analyst Shaun Cousins has a neutral rating and a price target of $42.
Jarden analyst Ben Gilbert has an underweight rating on JB Hi-Fi shares and a price target of $34.90.
Gilbert said: "The market appears to currently be pricing a scenario whereby house prices fall greater than 20% and spending falls 10%-plus for household goods."
Gilbert is also concerned about rising competition from Bunnings, Kmart, and Amazon.com Inc.
Goldman Sachs analyst Lisa Deng says sell and has the same share price target as Gilbert.
