FYI | Sep 13 2012
Every so now and then FNArena receives a question that is worthwhile sharing with a broader audience. This week's question from subscriber John from Altona Meadows, Victoria about JB Hi-Fi ((JBH)) qualifies in our view.
Question:
Hi,
I know you are not an advisor as such, but i would love a little information about JB Hi-Fi.
I purchased them around $2.00 and they did go up to 20+ dollars.. they have now gone down to under $9.00 and i have been reluctant to sell. I did get rid of some shares a few months back at $12.00, and am trying to figure out whether to get rid of the lot.
I am hearing about takeover rumours etc and that they are still a good company etc, but I have to admit I am getting a little worried.
Thanks in advance….
John
Response from the FNArena Editor:
John,
Maybe I should write this down in a Weekly Insights one day…
What many investors don't understand is that retailers such as JB Hi-Fi go through a growth cycle. At first they have a few stores only and growth becomes abundant as new stores are being opened in leverage of a successful business model.
At some point, however, the business reaches a certain level of maturity and this is where all bad things start happening; lower growth, de-rating, share price falls.
At this point in time, JB Hi-Fi shares are not expensively priced, as you can see in Stock Analysis. But our consensus data also show the company is effectively ex-growth.
At least, as far as the analysts are concerned.
This means the potential for further upside is not very large and those high dividends may well become the maximum achievable.
What could change this picture? Maybe a successful launch of the iPhone 5 can temporarily attract more buyers and sales in stores? But then we recently published a review that suggested selling more Apple products is not beneficial for retailers in Australia as it effectively depresses margins.
With retail spending to remain moderate, especially in the market segment of consumer electronics, I don't think your expectations regarding JB Hi-Fi should be too high.
Too many investors look over their shoulder and reminisce about how well those good times have been for the share price. They shouldn't. JB Hi-Fi is not just a story of a changing landscape for consumer spending in Australia, it is equally about a retail business model that has matured.
Watch cash flow statements to get an idea about how secure those dividend payouts are, and whether they will remain secure.
I hope this answers your question.
Cheers
Rudi Filapek-Vandyck
Your Editor
(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions.)
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