Back To The High For JB Hi-Fi?

JB Hi-Fi ((JBH)) operates out of Australia and New Zealand and is best known within the electronics industry where it sells televisions, speakers, in-car entertainment as well as computers and other household goods.  It also focuses on video games, music DVD’s and movies.  It has become more focused on its online store which allows it to be extremely competitive. For the six months ending the 31st of December 2016 revenues increased 24% to A$2.62B. Net income increased 16% to A$110.4M. Revenues highlight the operating section increase of 12% to A$2.23B and the retail sales increase of 12% to A$2.23B. Net income was partially offset by the sales and marketing expenses increase of 23% to A$249.3M. Broker consensus is presently “Hold”.  The dividend yield currently sits at 4.1%.
 
Reasons to be bullish:
→ Strong sales and margin performance from the Australian business.
→ The recent decision by the fair work commission on penalty rates should be positive for the industry.
→ Increased earnings potential following the Good Guys acquisition.
→ House market strength continues despite calls for weakness.
→ The consumer sector added significantly to recent results.
→ Weakening overseas competition should be beneficial.
→ A solid zone of support just beneath current levels.

Australian retailers have been taking a hit recently which shouldn’t come as any great surprise considering that the press, as well as many investors have been putting forward Amazon as a potential company destroyer. Gerry Harvey (co-founder of HVN) has been especially vocal with concerns regarding the threat from Amazon and is apparently readying for an upcoming war. He reportedly recently called the company a “parasite” which contributes virtually nothing to society. Strong words. The counter argument, at least over the short-term is that the retail sector continues to look solid with the economy appearing to be robust. Also, interest rates don’t look like heading too much higher over the short-term meaning the housing sector should avoid the substantial decline that many analysts are calling for.

This is all very interesting but let’s look at the technical picture which of course is what we focus on most. Last time we were looking for one final probe down toward the wave equality projection to complete a symmetrical (a)-(b)-(c) correction. That target also aligns very nicely with the zone of support which more often than not will draw price toward it. This is exactly what transpired here. Yesterday’s bar was interesting as price probe down intraday only to close nearer the highs of the session. There was also a marked increase in volume which is always reason to sit up and take notice. Price got on with the job today very nicely resulting in a large percentage gain. At the end of the day JBH is now in a position to have made at least an interim low which portends a decent bounce as a minimum. If our analysis is correct we’d expect price to head up toward the all-time highs made in September of last year above $31.20.

Trading Strategy

The bounce in the market over the past couple of days has presented some good opportunities, and we are going to put forward several this evening. JBH is one of those stocks with the strategy being to buy following a push above $25.16 with the initial stop placed just beneath the recent pivot low at $23.21 which provides our required low risk entry. The initial target sits at $31.20 although bigger picture there is no reason why blue sky territory can’t be attained.