In the last five trading sessions the shares of JB Hi-Fi Limited (ASX: JBH) have dropped lower by over 5%. Does this make this leading retailer a buy now?
Personally I would say no. Whilst there's a lot to like about JB Hi-Fi, at the current price it is still a little too expensive to tempt me into making an investment.
At 17x estimated FY 2017 earnings according to CommSec, JB Hi-Fi's shares are trading well ahead of their five-year average earnings multiple of just under 13x earnings.
It is also trading at a premium to its arch rival Harvey Norman Holdings Limited (ASX: HVN). Harvey Norman's shares are changing hands at 15x estimated FY 2017 earnings at present. Another bonus with Harvey Norman is that it is expected to provide investors with a fully franked 5.5% dividend in the year ahead.
So of the two retailers I would be more inclined to invest in Harvey Norman today. But I wouldn't necessarily rush into an investment in either retailer.
Although at this stage it is only speculation, there has been talk of ecommerce giant Amazon Inc opening up a full online retail store in Australia. As you might expect many are predicting that this would be a disaster for local retailers.
According to the Fairfax media, analysts at Citi have estimated that JB Hi-Fi could lose market share and see a drop in earnings of up to 23% if Amazon opened up in Australia. Harvey Norman isn't far behind with a predicted 19% drop in earnings.
I feel it is fair to say that the market would not react well to a drop in earnings of this magnitude and we would likely see a sharp drop in their share prices as well.
Whilst at this stage it is only speculation, I feel it is inevitable that we will see Amazon here eventually. So for this reason I will focus on other areas of the market.
