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Why the JB Hi-Fi share price rocketed 13% higher on Monday

James Mickleboro
bull market investing

The JB Hi-Fi Limited (ASX: JBH) share price certainly started the week with a bang on Monday.

The retailer’s shares finished the day 10% higher but at one stage was up as much as 13% to an all-time high of $31.60.

Why did the JB Hi-Fi share price rocket 13% higher on Monday?

Investors were buying the retailer’s shares on Monday after it posted a stronger than expected full year result.

In FY 2019 JB Hi-Fi recorded a 3.5% increase in revenue to $7.095.3 million, a 6.4% lift in earnings before interest and tax (EBIT) to $372.8 million, and a 7.1% lift in profit after tax to $249.8 million.

As a comparison, analysts at Goldman Sachs were expecting JB Hi-Fi to report EBIT of $362.3 million in FY 2019. And as they were amongst the most bullish analysts, this clearly was a solid profit result.

This strong result was driven largely by the company’s JB Hi-Fi Australia business. It reported a 4.1% increase in sales and a 2.6% lift in EBITDA.

Supporting this growth was the JB Hi-Fi New Zealand business which posted a 2% increase in sales and a 56.1% jump in EBITDA and The Good Guys business which posted sales growth of 2.2% and EBITDA growth of 10.6%.

What else caused the share price rise?

As I mentioned here on Monday, JB Hi-Fi is one of the most shorted shares on the Australian share market. At the last count, the retailer had 14.2% of its shares held short.

This means that 14.2% of its shares are held by short sellers who are betting that they will decrease in value.

This could mean that a “short squeeze” occurred on Monday following the release of JB Hi-Fi’s strong profit result.

Investopedia defines a short squeeze as “a situation in which a heavily shorted stock or commodity moves sharply higher, forcing short sellers to close out their short positions and adding to the upward pressure on the stock. Short sellers are being squeezed out of their short positions, usually at a loss.”

Short sellers have had a lot of luck with the likes of Syrah Resources Ltd (ASX: SYR) and Orocobre Limited (ASX: ORE) this year, but this may be one shares that they regret targeting.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019