A strong half-yearly update from electronics retailer JB Hi-Fi Limited (ASX: JBH) has sent the share price up over 5% this morning.
With JB Hi-Fi shares trading at all-time highs, is it too late to buy in?
JB Hi-Fi’s first-half results
The group’s preliminary unaudited HY21 results this morning revealed group sales of $4.94 billion, up 23.7% on the prior corresponding period (pcp). Earnings before interest and tax (EBIT) and net profit after tax (NPAT) also saw large increases of 75.9% and 86.2% on the pcp, respectively.
Much of this growth was driven by record online sales, which were up 161% to $678.8 million, representing 13.7% of total sales.
Sales growth mainly came from the Australian JB Hi-Fi segment and The Good Guys business, with revenue growth of 23.3% and 26.4%, respectively. Growth in the New Zealand segment was slightly flatter, reporting a 9.5% increase over the period.
Audited results will be released to the ASX on 15 February 2021.
Is the JB Hi-Fi share price cheap?
I’d note that most ASX retailers aren’t too expensive at the moment considering the outlook for the sector. However, JB Hi-Fi sells items that are discretionary in nature and therefore, the company is sensitive to underlying variables like wage growth, government stimulus and interest rates.
We know that wage growth has languished for the last few years and we also know that government stimulus will continue to taper off as the year goes on.
However, on the other side of that, the concern about wage growth and discretionary spending levels was one of the reasons many fund managers avoided JB Hi-Fi shares years ago when they were trading at around $20.
The point is, despite the less than ideal retail conditions, many retailers (JB Hi-Fi included) have performed consistently well over the years. And I would not be at all surprised if it continues its upward trajectory over these next few years as well.
Does that mean I’d buy JB Hi-Fi shares today? Probably not. Personally, I already have some retail exposure and I don’t think it’s necessary to be over-weighted in this sector at the moment.
How I get a sense of valuation
Back to the point though, are JB Hi-Fi shares cheap? Well, yes, relative to sales and earnings, I don’t think JB Hi-Fi shares carry an eye-watering valuation.
The company is anticipating NPAT in H1 FY21 of $317.7 million. Even if you were to assume the company performs much worse in the second half and only generates $150 million in profit, resulting in a hypothetical NPAT for the full year of $467 million, this would put the company on an estimated forward price-to-earnings (P/E) multiple of 13x.
That said, just because a share trades on a relatively low P/E multiple doesn’t necessarily mean it’s a good buying opportunity, in my eyes.
Rather than thinking of a P/E as “cheap” or “expensive”, I like to think it’s a good measure of the amount of optimism held by investors towards the stock.
Low retail P/E multiples mainly signal to me that investors aren’t expecting too much growth for the time being.
Valuation aside, I think JB Hi-Fi is one to keep your eyes on in 2021.
For some other share ideas, click here to read: 3 ASX tech shares to add to your 2021 watchlist.
