ASX retail shares can be some of the hardest stocks on the market to assess as a good investment. The retail sector is notoriously cyclical, and its players have to constantly adapt to changing consumer tastes and preferences.
As such, only the strongest ASX retail shares tend to be effective compounders of wealth over long periods of time.
Today, we’ll discuss two ASX retail shares that might just qualify for that label, at least according to one ASX broker. We’ll also cover one stock that this broker is telling investors to avoid.
ASX broker gives verdict on 3 ASX retail shares
As reported in The Australian this week, analysts at ASX broker Macquarie are eyeing two ASX retail shares that might stand to benefit from an artificial intelligence (AI)-fuelled “generational upgrade cycle in computer hardware”.
Macquarie is arguing that household appliances, computers and technology typically have a “5-7 year lifespan”. As such, the COVID boom in this corner of the market should result in an “echo” over the next 18 months or so.
Macquarie’s Ross Curran told The Australian, “An accelerated 5-year refresh rate on PCs instead of the usual 6-year cycle, along with a 15 per cent increase in price, could see a 34 per cent uplift in category”.
As such, Curran has upgraded Macquarie’s earnings estimates for the 2025 financial year for JB Hi-Fi Ltd (ASX: JBH), Harvey Norman Holdings Ltd (ASX: HVN) and OfficeWorks owner Wesfarmers Ltd (ASX: WES) by 4.5%, 3.7% and 0.5% respectively.
Consequently, Curran has lifted Macquarie’s ratings on JB Hi-Fi and Harvey Norman from ‘Neutral’ to ‘Outperform’. This implies investors should consider buying these ASX retail shares at current pricing.
However, Curran maintained a ‘Neutral’ rating for Wesfarmers, citing concerns over its current high valuation.
A tale of three retailers
To be fair, all three ASX retail shares have enjoyed some healthy rises over the past 12 months. At current pricing, Wesfarmers stock is up 33.8% since this time last year, while JB Hi-Fi has risen 26.7% and Harvey Norman, 21.25%.
Even so, Wesfarmers shares are currently trading on a price-to-earnings (P/E) ratio of 30.8. That looks elevated against JB’s 13.7 and Harvey Norman’s 14.6. Put another way, investors are currently being asked to pay more than double for $1 of earnings from Wesfarmers compared to $1 of earnings from JB or Harvey Norman.
As such, it’s not difficult to understand why Curran sees Wesfarmers shares as more overvalued than those of JB Hi-Fi or Harvey Norman.
The post 2 ASX retail shares just upgraded by brokers (and 1 downgraded) appeared first on The Motley Fool Australia.
Should you invest $1,000 in Harvey Norman Holdings Limited right now?
Before you buy Harvey Norman Holdings Limited shares, consider this:
Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Harvey Norman Holdings Limited wasn’t one of them.
The online investing service heâs run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
And right now, Scott thinks there are 5 stocks that may be better buys…
See The 5 Stocks
*Returns as of 5 May 2024
More reading
- Dump ’em! Top broker says sell these 3 ASX retail shares
- What is the price target for Wesfarmers shares?
- Here’s how the ASX 200 market sectors stacked up last week
- How I plan to invest my tax cuts
- Top ASX dividend shares to buy in May 2024
Motley Fool contributor Sebastian Bowen has positions in Wesfarmers. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group and Wesfarmers. The Motley Fool Australia has positions in and has recommended Harvey Norman, Macquarie Group, and Wesfarmers. The Motley Fool Australia has recommended Jb Hi-Fi. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
Leave a Reply