I'm seriously considering buying JB Hi-Fi Ltd (ASX: JBH) stock right now. Especially at the current price of $42.22 (at the time of writing).
So why JB Hi-Fi? Well, two reasons.
The first is that this is undoubtedly a top-quality ASX 200 retail share. JB stores are ubiquitous across the shopping centres of Australia. It is the go-to store for many, if not a majority, of Australians looking to buy a new TV, record, game, or home appliance.
The company has employed innovative marketing and pricing strategies for years now and has proven to be adept at moving with the times. Its decision to branch out into home appliances a few years ago proved prudent, as the market for its traditional audio and electronics shifted. Today, it sells far more TVs and fridges than CDs, records, and hi-fi equipment.
We can see JB's quality in the numbers it posts. Over FY2022, this company managed to increase its sales by 3.5% to a record high of $9.23 billion. That includes online sales growth of 52.8%. This helped lift the company's net profit after tax (NPAT) by a healthy 7.7% to another record high of $545 million.
And yet this quality, which I think is on clear display, doesn't seem to be reflected in the current JB Hi-Fi share price. Which takes us to our second reason: JB Hi-Fi shares are cheap today.
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JB Hi-Fi stock: cheap quality
How cheap? Well, for one, the company has lost close to 15% of its value over 2022 to date. It's also down more than 23% from its most recent all-time share price high.
But, more tellingly, the company is trading on a price-to-earnings (P/E) ratio of just 8.9 right now. That's an incredibly low P/E ratio. Consider that ASX 200 bank share Commonwealth Bank of Australia (ASX: CBA) is sitting on a P/E of 19.57 today.
This low share price relative to JB's earnings gives it a rather massive trailing dividend yield of 7.5% today. That's fully franked too, so we can gross it up to a hefty 10.7% with that full franking.
I reckon JB shares are good value at anywhere under $44 a share. But under $43? I think we have a bargain here.
Sure, JB Hi-Fi is a discretionary retailer, and would probably get a whack next time there is a recession.
But in my view, there is almost zero chance this business will not be bigger, better, and more profitable in 10 years' time. So I'm seriously considering buying this company before 2022 is out.
