👉 Background: Since 1974, JB Hi-Fi has been a well-known Aussie electronics retailer. Back in the day it was cassette tapes and CD-Roms... and now it sells iPhones and robovacs that serve as your in-house cleaner. It also owns The Good Guys and more recently e&s - which it acquired in September last year.

‍👉 What happened: Now, JB Hi-Fi has announced sales growth of nearly 10% for the six months to December and a net profit rise of 8%. But, while that sounds good, its share price fell 5% after announcing the results. That's because JB Hi Fi’s CEO warned that they’re expecting rising prices from suppliers, which will ultimately be passed on to consumers.

‍👉 What else: JB Hi-Fi has been trading on a forward profit multiple of just over 23 times, which is significantly higher than the long-term average for the consumer discretionary sector of ~18 times. So investors reckon it was maybe time to reconsider its price.

What's the key learning?

💡Investors don’t just look at what a company has done to determine a company's market value — they look at what’s next.  And when a company’s share price has jumped 70% in a year (ahem JB Hi-Fi), expectations go through the roof.

💡A forward profit multiple calculates a company's value based on its projected future profits.

• If the profit multiple is high, compared to the sector’s average, it means investors are betting on strong future growth for that company
• But if growth starts to slow, even slightly, the market can punish the company

💡And that’s what happened here with JB Hi-Fi when its CEO warned of price rises and reduced spending over the coming months.