By Michael McCarthy

Standing on your desk and shouting “Amazon is coming!” is not stock analysis. Yet, some investors appear to take this approach to their investments. The big sell-down in retail stocks in anticipation of the entry of stiffer competition is indiscriminate. It’s reasonable for investors to wonder if any babies have been thrown out with the bath water.

In my view, the answer is an emphatic yes. There are retailers in Australia with strong earnings records and a history of responding well to evolving retail environments.

Although I put Harvey Norman in this category, today I’d like to focus on the numbers that give confidence JB Hi-Fi has hit an attractive share price level.

1) The PE ratio

PE ratios are much abused. They are easily misused, and in some sectors such as resources, have little application. However, in retail they are a useful ready reckoner on the value in a stock. This chart shows JB Hi-Fi's PE ratio against its share price. When JBH hit its all-time high in February this year, the PE ratio remained well below its historic highs. This reflects the growth in earnings over time.


After the sell-down, the PE is closer to historic lows. At around 12.5x, JBH looks cheap to me. 

2) The dividend yield

Currently 6.7% when franking is included. The current cash rate is 1.5%. 

Despite threats, the consensus among analysts is that JBH will grow at around 9% (according to Bloomberg). Higher dividend yields are rare among high-growth stocks.

Recent headlines may have investors concerned that there is universal bearishness about JBH, yet three analysts rate it a “Sell”, six a “Hold” and five a “Buy”.

3) Key support at $22.60

This chart shows the bounce of support around $22.60. There are no guarantees in markets, but this combination of factors may give investors the confidence to trade through the market noise.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.