Is it possible that the share price of JB Hi-Fi Limited (ASX: JBH) is actually cheap?
You'd forgiven for thinking JB Hi-Fi is doomed from expectations of an Australian recession and predictions of carnage due to competition from Amazon.
Yet despite all that, the JB Hi-Fi share price is close to its all-time high. Since the start of 2019 the JB Hi-Fi share price has gone up 55% and it has more than doubled over the past five years, which doesn't include the great annual dividend.
Indeed, JB Hi-Fi currently has a grossed-up dividend yield of 6%.
JB Hi-Fi has been one to consistently prove the doubters wrong. I've been impressed by how the company manages to grow its profit year after year whilst maintaining a solid profit margin.
Whilst JB Hi-Fi New Zealand and The Good Guys had negative sales growth in July 2019, JB Hi-Fi Australia impressed with sales growth of 4.1% on comparable sales growth of 3.2%.
Perhaps this ongoing success shouldn't be too surprising. In the US, Best Buy – which is a fairly similar business to JB Hi-Fi – has also seen its share price more than double over the past five years with it very skilfully using the right strategies to counter Amazon and other online competitors.
In-fact, Best Buy CEO Corie Barry recently said "Over more than two decades consumer electronics continues a very steady line of growth. This runs counter to what may be the conventional but inaccurate wisdom that we work in a volatile and cyclical industry."
Perhaps we shouldn't be so tough on JB Hi-Fi. We all need to buy our new phones, computers and other gadgets from somewhere. Several of my purchases have come from JB Hi-Fi or The Good Guys in the past five years.
It's not as though JB Hi-Fi is only a bricks and mortar business. In FY19 JB Hi-Fi Australia saw online sales grow by 23% and it now represents 5.5% of total sales. That's a good defence against Amazon and others.
Foolish takeaway
With Australia's unemployment rate falling slightly over September, it could mean that JB Hi-Fi has an even better medium-term future ahead. If some investors shun retail shares, it could lead to value investors picking up bargains like JB Hi-Fi earlier this year.
At 15x FY19's earnings it's not excessively cheap, but it could be a decent candidate for alternative dividends from a blue chip source. But I'm not sure I want to have retail shares in my own portfolio.
