3 reasons why this top ASX 200 share is a buy

The S&P/ASX 200 Index (ASX: XJO) share Lovisa Holdings Ltd (ASX: LOV) could be one of the best options to buy within the index for the growth potential.

Lovisa is a retailer that sells “on-trend fashion jewellery at ready-to-wear prices”. It says its trend spotting departments around the world take inspiration from couture runways and current street style to deliver new, must-have styles to customers.

Following a decline of more than 30% in Lovisa’s share price over the past year, I think it’s a good time to look at the ASX 200 share.

I think there are three great reasons to look at the business.

Store network expansion

A lot of ASX 200 share retailers are focused on Australia (and New Zealand). Lovisa is truly a global business with stores across more than 30 countries.

It has more than 10 stores in Australia, New Zealand, Singapore, Malaysia, South Africa, the UK, Ireland, France, Germany, Belgium, the Netherlands, Poland, Italy, the USA and Canada. It also has a Middle East and Africa franchise, as well as a South America franchise, that both have at least 15 stores.

The company’s store expansion is a major factor that makes me believe it can grow significantly in the next five years. In FY26, it added a net 105 new stores to its global network (a rise of 10% year over year) to reach 1,136.

Countries like the USA, Canada, the UK and Germany saw the biggest increases in the store network. With the wealth and population sizes of those countries, I think there’s room to plenty more stores across those markets considering Australia and New Zealand have 217 stores between them.

Good profit growth

The key financial metric that many investors focus on is profit growth. Current and future profitability drives the (Lovisa) share price higher or lower. A growing net profit will help send the ASX 200 share price up over the longer term, even if there’s some volatility along the way.

In FY26, the company grew its net profit after tax (NPAT) by 10.7% to $95.6 million and the net profit before tax (NPBT) rose by 13.5% to $134.1 million.

I’d say that’s a solid rate of profit expansion considering it’s investing significantly each year in growing the store network. In cash flow terms, its net cash used in investing activities was $58.5 million in FY26.

The Lovisa share price is currently valued at 24x FY27’s estimated earnings and earnings are projected to rise by 25% between FY27 and FY29, according to the forecast on Commsec.

Rising dividend

The company isn’t necessarily known for paying large dividends. But regular profit growth allows the board of directors to regularly increase the payouts to shareholders.

In FY26, the company hiked its annual dividend per share by 11.7% to 86 cents. In other words, a dividend payout ratio of just under 100%. The company’s dividend has grown by 160% since FY19.

Lovisa’s dividend is projected to increase by another 39% between FY26 and FY29.

Based on the FY26 payout, it has a dividend yield of 3.4%, excluding the franking credits, which I think is a great starting point for the passive income from the ASX 200 share.

Lovisa and a few other ASX shares are very attractive to me right now.

The post 3 reasons why this top ASX 200 share is a buy appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Lovisa. The Motley Fool Australia has recommended Lovisa. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.