News of a second promising COVID-19 vaccine earlier in the week delivered an additional blow to some of the popular tech and retail names like JB Hi-Fi Limited (ASX: JBH).
In just under one month, the JB Hi-Fi share price has pulled back around 12%, which still isn’t too bad considering a return of around 100% since March even after this recent sell-off.
JBH share price chart
Is the JB Hi-Fi share price a buy today or has the COVID-19 boost run out?
JB Hi-Fi’s COVID-19 tailwind
It should come as no surprise that the company was in the perfect position to be a huge beneficiary of COVID-19. The work-from-home revolution meant JB Hi-Fi could be a key distributor of home office equipment and other consumer electronics.
However, it’s also no surprise that a significant portion of these sales would’ve been driven by government stimulus, as well as superannuation withdrawals. We know at this stage that the latter won’t be happening again, and JobKeeper continues to be gradually reduced every few months, so it’s likely it won’t be a sustainable tailwind either.
Some of my thoughts on JB Hi-Fi shares
I don’t have any criticisms of the company itself, it’s extremely well run and highly cash generative on a per-store basis. However, I do think the valuation is looking a bit stretched at this point with a P/E ratio of 17.3 at the time of writing. In contrast, JB Hi-Fi shares have typically traded on trailing P/E of 10 within the last few years.
Therefore, in order to justify that higher price tag now, we’d have to be expecting to see significant earnings growth to come.
JB Hi-Fi’s Q1 FY21 was impressive, with strong sales growth across the Australian JB Hi-Fi and The Good Guys segments. However, I would anticipate that after the Christmas period finishes up and stimulus falls off further, there will be a drop in sales compared to Q1 and Q2 this financial year.
Consensus estimates for FY21 earnings per share (EPS) are around $3.13 per share (currently $2.90). If you could assume the current P/E multiple will hold, I would estimate an FY21 price target of around $54.10 per share. That said, I wouldn’t be surprised to see that P/E multiple compress slightly due to fairly low growth estimates.
Buy/hold/sell?
I wouldn’t be a seller of JB Hi-Fi shares right now, but I probably wouldn’t be a buyer either. I think the share price is relatively expensive when you consider the challenges that JB Hi-Fi and consumer discretionary in general will be up against next year and onwards.
If you’re looking for retail exposure on the ASX, I quite like Baby Bunting Limited (ASX: BBN) at the moment because I think it’s more of a defensive play. If you’d like to know more, check out my in-depth article on Baby Bunting shares.
