Are JB Hi-Fi shares still a buy as growth slows?

Is this stock worth a bargain basket buy?

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JB Hi-Fi Ltd (ASX: JBH) shares have soundly beaten the market, rising by 23% in the past year (seen on the chart below), compared to a 7% rise for the S&P/ASX 200 Index (ASX: XJO). However, sales growth is now challenging amid the high cost of living situation.

Investors got a look at the latest quarter's performance earlier this week. The sales numbers in Australia weren't inspiring.

Sales recap

JB Hi-Fi reported that for the three months to 31 March 2024, JB Hi-Fi Australia's total sales decreased by 0.1%, JB Hi-Fi New Zealand's total sales improved by 16.8%, and The Good Guy's sales dropped by 0.8%.

Added to the first two-quarters of FY24, total JB Hi-Fi Australia sales were up 0.5%, JB Hi-Fi New Zealand sales rose 8.5%, and The Good Guys sales dropped 7.3%.

The ASX share described these sales as "resilient" and in line with the group's expectations.

Is the JB Hi-Fi share price a buy?

Brokers seem mixed on the business after seeing that update.

According to reporting by The Australian, the broker JPMorgan decided to increase its rating on JB Hi-Fi shares to overweight, meaning buy. The price target is where the broker thinks the share price will be trading in 12 months from now. JPMorgan's price target on JB Hi-Fi shares is $63, which is more than 11.92% higher than where it is now.

However, the broker Macquarie decided to reduce its price target on JB Hi-Fi shares by 5% to $61. That represents a potential rise of more than 8%, even though Macquarie's rating was reduced to neutral.

The broker UBS has a neutral rating and price target of $59 on the business, which would be a rise of less than 5%.  

UBS said it's cautious on the FY24 fourth quarter because JB Hi-Fi is cycling against a strong final quarter of the prior financial year, particularly JB Hi-Fi Australia.

Another issue is there is a potential downside risk to the earnings before interest and tax (EBIT) margin because of rising costs, including wages and rent (which are being driven higher by inflation). UBS suggested that saving costs is difficult because the company already has a "lean cost base," especially with JB Hi-Fi Australia.

UBS thinks operating ­de-­leverage is likely in the third quarter because of the sales decline and the cycling against a strong quarter ending 30 June 2023 for the FY24 fourth quarter.

Based on UBS' estimates, the JB Hi-Fi share price is valued at 15x FY24's estimated earnings and 15x FY25's estimated earnings. It could pay a grossed-up dividend yield of 6.2% in FY24 and 6.1% in FY25.

It seems some brokers think the JB Hi-Fi share price is capable of rebounding, but it faces challenges to profitability in the last few months of the 2024 financial year.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended JPMorgan Chase and Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool Australia has recommended Jb Hi-Fi. 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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