This post formed the basis of an article which then appeared in the Australian Financial Review on 15 December 2016. Michael Gable is a regular expert contributor to the AFR. You can access the AFR version HERE.
The success of JB Hi-Fi over the years has been well covered with the share price sitting over 5 times higher than where it was 10 years ago. We have been buyers of JB Hi-Fi in the past, attracted by their impressive growth. However recent price action is indicating that we may see lower levels in the JB Hi-Fi share price, and that we should therefore stay on the sidelines for now.
It has been a big year for JB Hi-Fi. It started off with the collapse of rival retailer Dick Smith, and there is no doubt that JB Hi-Fi was able to fill the void that was created and benefit from increased sales. It then announced in September the acquisition of The Good Guys. Analysts have been mixed on whether the price was right, and some question whether JB Hi-Fi has bit off more than it can chew. It may well prove to be a positive acquisition, but market reaction at the moment seems to be one of caution. The market still has fresh memories of companies experiencing integration issues, with Vocus being the most obvious example. The other cloud hanging over the share price is the recent media attention on Amazon coming to Australia, and what that means for retailers. Whatever the effect, the share price chart indicates that for now, investors are concerned and there is likely to be lower levels seen for JB Hi-Fi.
In September, JB Hi-Fi had three attempts to get above $31, failing each time. It then fell away and then started to struggle to hold $30. After dropping significantly in November, it tried to rally but has recently come under pressure again. We have noticed that when the selling came back in two weeks ago, the price of JB Hi-Fi failed to overlap the previous low points during September-October. This leads us to conclude that JB Hi-Fi is going to fall in 5 waves which is exactly what we predicted previously with Telstra and Baby Bunting. Now that JB Hi-Fi seems to be replicating this same trading pattern, we can conclude that weaker levels are imminent. Our first target for JB Hi-Fi is back towards support near $23, with $22 coming into play if the $23 region cannot hold.
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