Why Did JB Hi-Fi’s Share Price Drop Recently?

What does JB Hi-Fi do?

JB Hi-Fi Limited [ASX:JBH] is a specialty discount retailer of home entertainment products, with a focus on consumer electronics and games. The company primarily operates hundreds of stores across Australia and New Zealand.

The company reported its earnings on 15 August 2016. They were strong results. Sales increased for the year ended 30 June 2016 by 8.3% to $3.95 billion.

Net Profit after tax increased by 11.5% to $152.2 million.

What is moving JB Hi-Fi’s Share Price?

There has been a steady increase in JB Hi-Fi’s shares since the beginning of the year — prices were up 63%, rising from $19 in January to a high of $31 in early September this year. They are now trading slightly lower, at around $29.50.

On 13 September 2016, JB Hi-Fi announced the acquisition of one of its peers, The Good Guys, for $870m.

The company is organising an entitlement offer to partly fund the acquisition.

This is said to bring JB-Hi Fi significant buying, logistics, procurement and support function efficiencies, which would offset once-off acquisition costs.

The acquisition of The Good Guys is expected to boost JB Hi-Fi’s sales by $2 billion a year, and increase its earnings per share.

The company share price ran up on the news of the acquisition. There may now be some profit taking going on for some investors, which brought the share price down last week.

What Now for JB Hi-Fi shares?

You’ll read a lot in the financial press on whether the acquisition is good or bad. You don’t need to get caught up in all that. Should the share price make a higher weekly low following the news of the acquisition and continue to run higher, then initial indications would suggest the acquisition has been a good one.

The share price is slightly up today, in early trading.

Terence Duffy,
Cycles, Trends and Forecasts

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia