The ASX retail space is always abuzz with activity, with companies scrapping it out like starved hounds over the 'share of wallet' from Aussie consumers.
One can't talk about the space without mentioning two of the heavyweights, Harvey Norman Holdings Ltd (ASX: HVN) and JB Hi-Fi Ltd (ASX: JBH).
With these two names, you have two ends of the same stick, so what makes one stand out over the other? Let's see what the experts think.
ASX retail stock showdown
If this were an ASX retail stock showdown on market price this year, then Harvey Norman would come in second.
As seen in the chart below, the performance of each stock has diverged like the serpent's tongue, with JB Hi-Fi now pushing away from its rival.
But as Oscar Wilde quoted, "The truth is rarely pure, and never simple".
And the truth is, Harvey Norman has lost some ground to competitors. Australian sales grew by 3.1% over the four months to October, but its New Zealand sales fell by 8.2%.
The company's broader challenges are multi-pronged. Overstocking issues. Discount-driven sales strategies. That kind of thing. Each of which has weighed on profit margins.
Analysts at UBS have downgraded Harvey Norman to a neutral rating this week, citing concerns over its trailing performance relative to competitors like The Good Guys.
The Good Guys is a division of JB Hi-Fi.
UBS rates the stock a hold with a $5 price target. According to The Australian:
The improvement in Australian Franchising revenue and profit before tax margin stabilisation has occurred, yet performance is trailing competitors. Retail New Zealand remains challenged as well.
Meanwhile, Bell Potter rates the ASX retail stock a buy with a $5.80 price target, implying a more than $1 per share upside in the next 12 months.
On the upside, the stock now trades on a trailing dividend yield of 4.59% at the time of writing.
Let's not forget that Harvey Norman operates 318 stores, most of them directly owned, with the remainder under a franchise model. This includes its global footprint, with stores in Europe and Asia.
It also just cut the ribbon on its flagship store in England. These aren't signs of a titan in distress.
JB Hi-Fi, go fly high
JB Hi-Fi is on a tear, with its share price up 72% this year. It has pulled away from its rival on the chart, but what about the business?
Bell Potter rates JB Hi-Fi shares a buy as well, recently raising its price target to $98 per share in a note to clients.
It says the company's flagship JB Hi-Fi Australia business continues to dominate, showing solid growth despite a challenging retail environment.
The broker also says a valuation of 20 times earnings seems appropriate for this business and that management's earnings forecasts "look too conservative" for the coming three years.
It mentioned "the high-quality earnings base" and reckons the market is "still conservative on the future earnings growth" of the company.
Foolish takeaway
Both Harvey Norman and JB Hi-Fi offer compelling investment cases. Experts say JB Hi-Fi's recent sales growth and potential to capture market share make it an attractive option for investors seeking exposure to the ASX retail sector.
Meanwhile, they also say Harvey Norman could appeal to income-focused investors, thanks to its property portfolio, solid dividend yield, and the strength of the brand.
Time will tell what happens from here.
