With the JB Hi-Fi Limited (ASX: JBH) share price down 26% over the past year, is it a buy?

JB Hi-Fi is one of Australia’s largest device and home appliance retailers with its network of The Good Guys and JB Hi-Fi stores. JB Hi-Fi was established in 1974 by Mr. John Barbuto (JB), trading from a single store in East Keilor, Victoria.

Is the JB Hi-Fi share price a buy?

In FY18 the retailer delivered a solid underlying result. Total sales were up 21.8% to $6.9 billion, EBIT grew by 14.5% and profit per share (EPS) increased by 9.2% (click here to learn what EBIT means).

However, management has warned that sales growth is slowing in FY19. The recent trading update at its AGM said that in the first quarter JB Hi-Fi’s sales were up 5.3%, and comparable sales growth was 3.4%. Good Guys sales growth was reported at 2.3% with comparable sales growth of 1%.

As for the rest of FY19, management guided sales could grow at around 3% to $7.1 billion.

Why has growth suddenly halted?

Many investors would say the culprit is Australia’s falling housing prices. If your house is falling by thousands of dollars a month you’re not going to want to shell out on a new TV or couch.

With JB Hi-Fi shares now trading at just over $21 each, however, it’s valued at a bit more than 10 times FY18’s earnings/profit — so that’s quite reasonable. Its dividend yield based on the last year of payment is 6.2%, not including the franking credits. Again, quite reasonable.

Value investors are weighing up whether retail shares like JB Hi-Fi are actually good value, or if they’re a “value trap”. After all, if JB’s profits fall then its shares suddenly won’t look so cheap!

Looking forward, JB Hi-Fi is predicting sales growth of only a little more than inflation this year. If its profit margins decline then profit will likely go backwards. JB Hi-Fi may be one of the largest retailers in the country, but it faces heavy price competition from online retailers like Amazon Inc (NASDAQ: AMZN) and Kogan.Com Ltd (ASX: KGN).

It is definitely possible to succeed in an Amazon world. The Best Buy Co Inc (NYSE: BBY) share price is up 131% over the past five years despite Amazon’s competitive strength and the large fall in the share market over the past few months. JB Hi-Fi just needs to deploy the same strategies that made Best Buy successful despite Amazon’s huge presence.

So… are JB Hi-Fi shares a buy?

I don’t think so, not yet anyway.

As long as Australia’s house prices keep falling there is a danger that the country that has avoided a recession for a quarter of a century could drop into a technical recession, which could be a continuing negative factor to JB Hi-Fi’s sales and profit.

All up, JB Hi-Fi may not be a reliable profit generator for the time being. Instead, there are other ASX shares like the ones in the free report below that could make safer bets over the next few years.

3 ASX shares that could be safer than JB Hi-Fi

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).