Should you buy these retailers?

The retail sector faces many challenges, but these companies are worth a second look.

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Changing consumer trends, declining financial results, and doubt regarding the future prospects of brick and mortar retailers were among the reasons that sent shares in Australian retail companies plunging between 2011-12.

Investors who believed in the management teams behind companies such as Myer (ASX: MYR) and David Jones (ASX: DJS) were able to pick up stocks at bargain prices. Since June last year, these companies have given investors outstanding returns of 91.5% and 37.1% respectively.

Despite these gains, the retail industry still faces turbulent times, which leaves investors questioning: Which companies are worth considering for my portfolio?

Thorn Group (ASX: TGA) has largely remained under the radar of many investors. Although Thorn's business is not solely in retail (it also offers various financial services), it is the owner of companies such as Radio Rentals and Rentlo. The company has proven resilient throughout the challenging market conditions that have faced the retail sector, and will continue to drive performance in every area of its business. Currently valued at $2.12 per share with a P/E ratio just under 11 and a yield of 4.6%, the company looks to be a very attractive buy.

Shares in JB Hi-Fi (ASX: JBH) soared last week after the company raised its expectations for annual profit for the year. The company now expects net profit after tax (NPAT) to be between $112-116 million for the year – an increase of 7-11% on the prior year. After last week's rally, the shares do seem expensive, but it is well worth adding JB to your watch list and waiting for a more attractive entry point.

The Reject Shop (ASX: TRS) is largely protected from the changing consumer trend to shop online, due to the nature and cheap prices of its products. In its half-year results, the company announced a NPAT increase of 21.2% and an 11.9% increase in sales – results that were largely aided by the opening of 17 new stores. As the company continues to open stores in record numbers (opening 40 stores over the course of the year, with the possibility of more), investors will reap the benefits in the long term.

Foolish takeaway

Shares in many of Australia's retailers have made significant gains for investors over the past 12 months, making it difficult to find good companies at bargain prices. By searching for companies working toward longer term goals however, there are still gains to be made.

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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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