Retailers have been out of favour due to cost of living pressures and recent interest rate rises, and Baby Bunting Group Ltd (ASX: BBN) has not escaped the downturn.
The baby goods retailer’s shares are down more than 60% on a 12-month basis and are trading just a few cents higher than their 52-week low of $1.
However, the analyst team at Morgans believes they’re ripe for a re-rating and have a buy rating on the shares and a bullish share price target, which I’ll get to shortly.
First let’s have a look at the trading update which the company issued just this week.
Solid start to the year
In a statement to the ASX, Baby Bunting said that over the first 14 weeks of the financial year, it had achieved comparable store sales growth of 2.2%, with 2% growth in Australia and 8.7% growth in New Zealand.
Under the company’s “store of the future” program, it has now refurbished 17 stores, which have delivered cumulative sales growth of 20%.
This financial year, the company plans to refurbish 10-12 stores, with six to be completed in the first half.
Baby Bunting said the risks involved in the program included the duration of store closures, targeted at 10-12 weeks per store, and the level of sales redirection.
The company also plans to open three new large-format stores during the year, with the first opening in December.
Net profit for the full year is expected to come in at $19-$21 million, with total sales revenue of $585-$600 million.
The company added:
In light of interest rate rises and cost-of-living pressures, we continue to closely monitor and react to trading conditions as we execute our plans for the key promotional periods during the balance of the year, including the important trading periods of November, Boxing Day and June Storktake. Outlook assumes no significant changes in economic and retail trading conditions, and no significant increases in sea and land freight expenses.
Retailer’s shares looking cheap
In a research note, Morgans said that Baby Bunting was Australia’s largest specialist provider of baby goods, and there was still room to grow.
The broker added:
It has an opportunity to build its share of this large market segment as it expands its store network, extends its private label range, enters New Zealand, and increases its online presence. We expect earnings growth into FY27, driven by Store of the Future.
Morgans has a price target of $1.62 on Baby Bunting shares, compared to $1.05 currently. If achieved, this would be a 54.3% increase.
Baby Bunting is currently valued at $150.5 million.
The post Trading near 12-month lows, this ASX retailer could be set for a 54% gain appeared first on The Motley Fool Australia.
Wondering where to invest $1,000 right now?
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes could be the ‘five best ASX stocks’ for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now…
* Returns as of 6 March 2025
More reading
- 3 ASX small-cap shares with 48% to 128% upside ahead: Morgans
- Lovisa vs Baby Bunting: Which ASX retailer is the better buy today?
Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.