Could buying JB Hi-Fi shares at under $45 make me rich?

Are JB Hi-Fi shares a bargain buy right now?

| More on:
A young woman sits with her hand to her chin staring off to the side thinking about her investments.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • JB Hi-Fi shares have dropped amid concerns about interest rates and inflation
  • The company believes it has a number of advantages, including scale and its low-cost operating model
  • I think it’s a longer-term opportunity, with an attractive dividend yield

The JB Hi-Fi Limited (ASX: JBH) share price has been through plenty of volatility over the past year. At the time of writing, it's down close to 20% since 1 April 2023.

JB Hi-Fi operates three different businesses – JB Hi-Fi Australia, JB Hi-Fi New Zealand, and The Good Guys. Each of these businesses has a good position in the markets in which they operate.

The last few years have been a very profitable period for the ASX retail share. But that may be about to change if households don't buy as many consumer goods in the next couple of years. Inflation and higher interest rates are making things tougher for people's budgets.

Earnings expected to fall

In FY22, the business made earnings per share (EPS) of $4.80, which was growth of 8.8% year over year.

Then, in the FY23 half-year result, it generated $3.02 of EPS, which was growth of 20.4% after comparing it against a locked-down six months in the prior corresponding period.

But, in FY23, the business is expected to generate EPS of $4.50 according to Commsec. This would be a reduction of 6.25% year on year. EPS could then fall to $3.45 in FY24, which would represent a fall of around 28% compared to FY22.

However, I'm not sure many investors would have said they believed EPS was going to stay elevated forever. Demand for TVs, fridges, computers, and phones can go up and down through the economic cycle. But I think it would be a mistake for investors and the market to price JB Hi-Fi shares as though conditions will be like this for a very long time.

I believe that the RBA interest rate will reduce towards 3% if/when inflation settles back close to that level.

Why JB Hi-Fi shares could outperform

I think it particularly makes sense to look at ASX retail shares at a point in the economic cycle when conditions are uncertain.

I wouldn't just buy any retailer though. I'd make to make sure that the retailer has a strong business model and is attractive for customers.

JB Hi-Fi itself says there are a few key advantages that it has: scale, low-cost operating model, multi-channel capabilities, and its people and culture.

It says it's the number one player in the Australian consumer electronics and home appliance market, which is useful because it gives it more relevance to local and global suppliers. Being the biggest means it can spend more on marketing, benefit from efficiencies, and get a better deal buying products.

The low-cost operating model refers to its focus on "productivity and minimising unnecessary expenditure", with "highly productive floor space with high sales per square model". It also means it can respond to market price activity and maintain its focus on market share while competing with older competitors and new entrants.

The multi-channel capabilities mean customers can engage easily, making a sale potentially more likely. There are online, in-store, and over-the-phone sales channels that shoppers can utilise.

Finally, it suggests that exceptional customer service is a key selling point, while having a "dynamic and flexible environment" allows the business to pivot quickly to adapt to any changing market conditions.

I believe that, over the long term, JB Hi-Fi can continue to perform. Australia's growing population can help overall demand over time, which can support sales.  

According to Commsec, the JB Hi-Fi share price is valued at just 13x FY24's estimated earnings, with a possible grossed-up dividend yield of 7.25% for that year. I think it's a good price to invest, but I wouldn't expect it to deliver enormous capital growth from here because of how large it already is. However, I do think it can outperform — though a lower share price would be even more attractive.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended JB Hi-Fi. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Opinions

a drink poured from a bottle into a glass
Opinions

2 shares I'll be adding to my portfolio – even with the ASX near all-time highs

Even though the markets are near record highs, there is still value to be found.

Read more »

A little Asian girl is so excited by the bubbles coming out of her bubble machine.
Opinions

Worried about a frothy market? 2 ASX shares attractively priced AND 1 dead simple buy

Pricey markets don't require sitting on the sidelines.

Read more »

A man looks a little perplexed as he holds his hand to his head as if thinking about something as he stands in the aisle of a supermarket.
Opinions

This ASX 200 share is trading near 52-week lows. Is it time to buy?

Is this one of the most underrated stocks on the ASX right now?

Read more »

A young well-dressed couple at a luxury resort celebrate successful life choices.
Opinions

Want to become wealthy? Invest in ASX shares for 2030 rather than 2025

Long-term investing in ASX shares make a lot of sense to me.

Read more »

A couple lying down and laughing, symbolising passive income.
Opinions

How to invest in ASX shares for big capital gains AND passive income

Certain types of ASX shares are capable of producing good returns, including dividends.

Read more »

Woman on a swing at a beach, symbolising passive income.
Dividend Investing

Overinvested in Fortescue shares? Here are two alternative ASX dividend stocks

Let’s unearth some other passive income opportunities.

Read more »

A person sitting at a desk smiling and looking at a computer.
Opinions

What I plan to do if the US election causes an ASX stock market sell-off

This could be a dramatic US election. Here’s how I’m approaching it.

Read more »

Sad shopper sitting on a sofa with shopping bags.
Opinions

Is the Wesfarmers share price a buy? Here's my view

Is the Bunnings owner a buy at this lower valuation?

Read more »