JB Hi-Fi Ltd (ASX: JBH) shares are popular among ASX investors.
Since its founding in 1974 and listing on the ASX in 2003, JB Hi-Fi has successfully navigated several economic cycles. It is Australia's leading electronics retailer and one of the highest-quality businesses on the ASX.
The company is highly profitable and has several competitive advantages. These include strong branding, an extensive product range, a reputation for low prices, superior customer service, and scale advantages due to its wide store presence.
JB Hi-Fi has performed incredibly well over the past 5 years, rising 174%.
For the year to date, the ASX 200 consumer discretionary stock has already risen 16%, materially outperforming the S&P/ASX 200 Index (ASX: XJO), which is up just 4%.
Those who invested $10,000 into the business at the start of the year have already turned their investment into approximately $11,600 (excluding dividends).
Can JB Hi-Fi shares charge higher?
Let's see what leading broker JP Morgan (NYSE: JPM) had to say.
In May, the broker boosted its price target for JB Hi-Fi shares from $91 to $93.
However, at the time, JB Hi-Fi shares were changing hands for $103.45. Therefore, the stock was downgraded from overweight to neutral. The broker said further share price increases would be limited by the multiple expansion to date.
Since then, the stock has continued to rise, and today, it sits at $109.56. While the broker hasn't changed its rating since then, it's unlikely they see compelling value at this price.
What drove the downgrade?
JP Morgan issued this ratings change after reviewing the company's third-quarter sales update.
The broker said:
JB Hi-Fi's 3Q25 sales update highlighted a deceleration in recent months, as it cycles a higher baseline from prior years. The absolute level of growth remains robust but is on a normalisation path. A number of catalysts are likely to support earnings and an elevated multiple over the next 12 months, however these are well understood and appear largely priced in.
JP Morgan also noted that the company has benefited from several catalysts, which have played out.
These include:
1) AI product cycle driving ASP in tech; 2) three more RBA cash rate cuts in 2025; 3) supportive fiscal policy and housing stimulus post-election; 4) potential tariff tailwinds for rebate levels from suppliers to fund discounts; and 5) a net cash balance sheet which supports a series of special dividends, including $2 forecast for 2H25.
Foolish Takeaway
JB Hi-Fi has been an Australian success story and a lucrative investment for shareholders. However, given its strong run, its valuation is now stretched to a point that limits forward returns. JP Morgan has placed a price target of $93 on the stock, which sits well below its current price of $109.56. This suggests investors looking to initiate a position in JB Hi-Fi shares should hold off.
