JBH share price in focus
Established in 1974, JB Hi-Fi is one of Australia’s largest retailers of electronic and home entertainment products.
The company is broadly divided into three business segments, namely JB Hi-Fi Australia, JB Hi-Fi New Zealand and The Good Guys, which sell similar products and were acquired in 2016.
JB Hi-Fi operates through a cost leadership strategy i.e. it competes against its competitors on price. Many of its products are often discounted resulting in a much better value for its customers.
Key metrics
If you’ve ever tried to read a company’s income statement on an annual report, you know it can be quite complicated. Although there are many figures you can draw from this statement, three are important. Revenue, Gross Marginand profit.
Income is important for obvious reasons – it all starts here. If you can’t generate revenue, you can’t generate profit. What we are concerned with is not the absolute number, but the trend. JBH last reported annual revenue of $9,592m with a Compound Annual Growth Rate (CAGR) 2.5% per annum for the last 3 years.
Moving down to the income statement, we then arrive at gross margin. Gross margin tells us how profitable the underlying products/services are – before you take into account all overhead costs, how much does the company make from selling $100 worth of goods or services? JBH’s most recently reported gross margin was 22.3%.
In the end, we benefit, which is the most important figure. Last financial year JB Hi-Fi Ltd reported a profit of $439m. This compares to 3 years ago when they made a profit of $506m, representing a CAGR of -4.6%.
Financial health of JBH shares
The next thing we need to consider is the capital ‘health’ of the company. What we are trying to assess here is whether they are generating a reasonable return on their equity (total shareholder value) and have a reasonable buffer of safety. A scale that we can see. Net debt. It is simply the total debt minus the company’s cash holdings. In JBH’s case, current net debt sits at $340m.
A higher number here means that the company has a lot of debt which potentially means higher interest payments, higher volatility, and higher sensitivity to interest rates. A negative value, on the other hand, indicates that the company has more cash than debt (a useful safety buffer).
However, the argument is more important Debt/Equity Percentage. It tells us how much debt the company has compared to shareholder ownership. In other words, how leveraged is the company? JBH’s debt/equity ratio is 42.2%, which means they have more equity than debt.
Finally, we can see Return on Equity (ROE). ROE tells us how much profit a company is making as a percentage of its total equity – a higher number indicates that the company is allocating capital well and creating value, while a lower number indicates that profits could offer more value if they were paid out to shareholders as dividends. JBH generated an ROE of 29.5% in FY24.
What to make of JBH shares?
While JBH ROE is reasonably good, revenue and profit trends have been unimpressive. It may be worth digging a little deeper into the annual reports to understand why this is the case and if there is a plan in place to address it.
Please keep in mind that these figures are important but should only be the beginning of your research. It is important to get a good grasp of the company’s financials and compare it to its peers. It is also very important to make sure that the company is priced appropriately. To learn more about share price evaluation, you can sign up for one of our many free online investing courses.
