JB Hi-Fi earnings are up. So why is the stock getting smashed?
JB Hi-Fi's 9.7% selloff despite beating estimates warns of valuation risks facing high-flying ASX stocks this reporting season.
Source: Shutterstock
Mentioned
KEY POINTS
- JB Hi-Fi delivered solid FY25 results beating estimates on sales, earnings and announcing a 100 cent special dividend, yet shares plunged as much as 9.7%
- The stock's PE ratio expanded from 18x to 28x over twelve months despite flat earnings growth over two years, highlighting how share price gains have outpaced underlying business performance
- JB Hi-Fi's selloff signals a broader market shift where even strong earnings beats may not justify elevated valuations, creating heightened risks for other high-flying ASX stocks this reporting season
JB Hi-Fi (ASX: JBH) serves as a prime example of why strong earnings may not be enough to propel elevated share prices any higher this reporting season.
Despite delivering mid-to-high single digit revenue, earnings and dividend growth in FY25, the stock was aggressively sold off, down as much as 9.7% on Monday.
This outcome highlights a broad market dynamic worth watching this reporting season. Let's break down what went wrong and the implications for other high-flying stocks.
FY25 at a glance
JB Hi-Fi delivered a clean set of numbers that largely beat market expectations on an underlying basis:
Sales up 10% to $10.6 billion vs. $10.49 billion ests
Gross margin down 21 bps to 21.99% vs. 22.13%
EBIT up 7.3% to $694.1 million vs. $700.6 million ests
NPAT up 5.4% to $462.4 million vs. $472.2m ests
Earnings per share up 5.4% to 423 cents per share vs. 431 cents ests
Full-year dividend up 5.4% to 275 cents per share (65% payout ratio)
A special dividend of 100 cents per share
Note: On an underlying basis excluding one-off ACCC expenses, EBIT was up 9.4% to $707.8 million and NPAT rose 8.5% to $478.1 million — both beating estimates.
JB Hi-Fi also announced an uplift to its dividend payout ratio from 65% to 70-80% of net profit from FY26.
FY26 off to a strong start
The first month of FY26 highlighted accelerating growth vs. the prior period:
Total sales for JB Hi-Fi Australia was 6.1% (vs. Jul-24: 5.6%) with comparable sales growth of 5.1% (Jul-24: 5.2%)
Total sales growth for JB Hi-Fi New Zealand was 38.1% (July 2024: 12.2%) with comparable sales growth of 24.0% (July 2024: -4.9%)
Total sales growth for The Good Guys was 4.2% (Jul-24: 2.7%) with comparable sales growth of 3.8% (Jul-24: 2.7%)
Total sales growth for e&s was 1.0% with comparable sales growth of -2.7%
Everyone now cares about valuation
'Valuation' might be a bigger key word than 'AI' this reporting season.
JB Hi-Fi entered the result having surged 31% year-to-date and almost 70% over twelve months. Yet this massive rally occurred despite minimal underlying earnings growth, with 5.4% growth in FY25 following a 16.4% decline in FY24. Over two years, earnings have essentially flatlined while the share price soared.
This disconnect drove JB Hi-Fi's price-to-earnings ratio from around 18x a year ago to 28x before the result.
Adding to concerns were CEO Terry Smart's retirement announcement and gross margins that missed expectations by 14 basis points.
The bottom line
The market briefly rewarded JB Hi-Fi's solid FY25 result, with the stock opening 2.0% higher. But the aggressive selloff illustrates the heightened stakes facing many ASX stocks this reporting season.
The market rally has pushed numerous companies to record highs at a time when earnings growth across many sectors remains modest. So if the stock chart goes from the bottom left of your screen to the top right, there's simply no room for error. Even solid results may not suffice if valuations have stretched too far ahead of fundamentals.
