JB Hi-Fi Limited (ASX:JBH) currently trades at $18 – a long way from its 52-week high of $23. At the current share price, JB Hi-Fi appears to be cheap.
The company provided the market with a trading update in May and reported good sales momentum with sales growth up 3% for the three months to March 2014. Impressively, the HOME stores achieved sales growth of 12% for the three months to March 2014. At the end of FY14, the company will have 182 stores in Australia and New Zealand, including 22 HOME stores. The company is also forecasting solid profit growth for FY14 of between 8%-10%.
I believe JB Hi-Fi is set for future growth as a result of the following:
1. The company has targeted an increase in store count to 214, up from the current level of 182 which will be a key driver of earnings in the medium term.
2. Significant growth will come from the roll-out of the HOME stores. The company has targeted opening 75 HOME stores by the end of FY16 (up from 22 stores currently). The home appliances market is a $4.6 billion market in Australia and therefore provides a large opportunity for JB Hi-Fi to capture a share of this market.
3. The company's online platform should grow rapidly as it can leverage from its high volume of physical sales and loyal customers.
4. The business has an extremely strong brand and following of loyal customers which provides it with a solid foundation of recurring revenue.
The company trades on a price earnings ratio of just 14 times. The current price looks cheap when considering the growth opportunities and the attractive dividend yield of over 4%.
