Stock Analysis

Does JB Hi-Fi (ASX:JBH) Deserve A Spot On Your Watchlist?

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ASX:JBH
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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In contrast to all that, I prefer to spend time on companies like JB Hi-Fi (ASX:JBH), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for JB Hi-Fi

How Fast Is JB Hi-Fi Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, JB Hi-Fi has grown EPS by 29% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). JB Hi-Fi shareholders can take confidence from the fact that EBIT margins are up from 6.1% to 8.4%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

earnings-and-revenue-history
ASX:JBH Earnings and Revenue History January 14th 2022

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for JB Hi-Fi's future profits.

Are JB Hi-Fi Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. Because oftentimes, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Like a sturdy phalanx JB Hi-Fi insiders have stood united by refusing to sell shares over the last year. But my excitement comes from the AU$141k that Independent Non-Executive Director Geoffrey Roberts spent buying shares (at an average price of about AU$47.04).

On top of the insider buying, it's good to see that JB Hi-Fi insiders have a valuable investment in the business. Indeed, they hold AU$43m worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 0.8% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Should You Add JB Hi-Fi To Your Watchlist?

You can't deny that JB Hi-Fi has grown its earnings per share at a very impressive rate. That's attractive. Better still, insiders own a large chunk of the company and one has even been buying more shares. So I do think this is one stock worth watching. However, before you get too excited we've discovered 2 warning signs for JB Hi-Fi (1 shouldn't be ignored!) that you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of JB Hi-Fi, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Valuation is complex, but we're helping make it simple.

Find out whether JB Hi-Fi is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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