Tag: Motley Fool

ASX reporting season was fascinating to me, with a number of businesses reporting financials that were stronger than previously thought. I’m going to write about two ASX stocks that seem like bargains to me.

The economy and households overall seem to have done better than expected, though there is pain in some places.

With retail spending holding up quite well and the economy strengthening in the coming years, I think a couple of these ASX retail shares look like good buys.

Universal Store Holdings Ltd (ASX: UNI)

The Universal Store share price is down 22% from February 2023 and it’s down 45% from November 2021. I think it looks great value considering its result and potential growth.

This business operates premium youth fashion brands, with the primary business being Universal Store. It operates the THRILLS and Worship brands within the CTC business, and it’s rolling out Perfect Stranger as a standalone retail store

Universal Store’s FY24 half-year result showed 8.5% overall sales growth to $158 million, with Universal Store sales down 1.4% to $133.2 million, Perfect Stranger sales up 59.7% to $6.6 million and CTC sales up 4.2% to $25.3 million.

It also reported an 80 basis point (0.80%) increase in the gross profit margin to 59.7%. Statutory net profit after tax (NPAT) grew by 16.7% to $20.7 million, while underlying earnings before interest and tax (EBIT) increased by 8.1% to $30.8 million, despite all of the spending on opening new stores.

It opened six new stores during the first half – the store opening program is one of the main reasons I think the company has a promising future as it increases scale.

The ASX stock impressively grew its interim dividend by 18% to 16.5 cents.

According to the projections on Commsec, the ASX retail share is valued at under 13 times FY24’s estimated earnings and 10 times FY26’s estimated earnings. It could pay a grossed-up dividend yield of 9.6% in FY26.

Accent Group Ltd (ASX: AX1)

Accent acts as the distributor of a number of global shoe brands including Skechers, Vans, Kappa, Hoka, Dr Martens and CAT. It’s also responsible for its own businesses including The Athlete’s Foot, Stylerunner, Glue Store and Nude Lucy.

The Accent share price is down 16% from 14 February 2024 and down 24% from 19 April 2023.

Keeping in mind that HY24 was a 26-week period and HY23 was a 27-week period, owned sales fell 2% to $733 million, gross profit increased 0.6% to $414.9 million, the ASX stock’s EBIT dropped 21% to $72.3 million and net profit after tax declined 27.6% to $42.2 million.

Sales and net profit declining is not exactly a positive. But, I believe it’s a cyclical decline that can turn around in FY25 onwards. It’s also opening up a compelling valuation to buy at. Total owned sales in the year to date at the end of January were up 1.6%.

It continues to open new stores that can boost sales in the short term and the longer term, which can help with total sales and operating leverage.

According to Commsec’s numbers, the Accent share price is valued at 14 times FY25’s estimated earnings and 12 times FY26’s estimated earnings. It could pay a grossed-up dividend yield of 10.3% in FY26.

The post I think these ASX stocks are bargain buys after reporting season appeared first on The Motley Fool Australia.

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More reading

• 3 ASX dividend shares to buy with ~5% yields for an income boost
• Forget term deposits and buy these ASX dividend stocks
• Buy these ASX dividend stocks with yields of 5% to 7.5%
• How investing $100 per week can create $2,000 in annual ASX dividend income
• Why Accent, Cettire, Dicker Data, and Iress shares are dropping today

Motley Fool contributor Tristan Harrison has positions in Accent Group. 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 recommended Accent Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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ASX small-cap shares have been battered and bruised over the last few years, but now might be the time to look at those businesses with smaller market capitalisations.

The broker Wilsons recently pointed out that ASX small-cap shares typically underperformed large caps in the lead-up to an economic slowdown, and this cycle had been “no exception”, with small-cap ASX shares underperforming “significantly” since 2021.

However, Wilsons said the growing economic data of resilience, combined with easing inflation pressures, could “provide the foundations for a strong comeback in small cap benchmarks in 2024 and 2025 as global and domestic economic growth picks up again.”

Here’s why the broker thinks investors should like (ASX) small-cap shares.

Cheaper valuations

Wilsons said small-caps were still trading at a “very wide and historically attractive discount relative” to large-cap stocks. Global small caps were supposedly trading at the “largest discount relative to large caps in over 20 years”.

In previous periods, when small caps have traded at large discounts, they have gone on to deliver strong returns over the next 12 months, particularly when economic conditions and the official policy backdrop turn supportive.

Economies to rebound?

Wilsons suggested (ASX) small-cap shares outperformed large caps in the early, or expansionary, stages of the economic cycle as growth picks up again.

The broker pointed to 2009 and 2020 as the last two times small caps were cheap, which then saw strong performance for the smaller businesses.

Interest rate cuts

What happens with interest rates can also have an essential influence on performance at the smaller end of the market.

Wilsons said small caps have historically outperformed large caps in the year after an interest rate peak as policy is eased.

On this topic, Wilsons wrote:

We are cognizant of the risk of the lagged impact of tighter monetary policy as well as the higher-for-longer rate scenario. However, in our view, there are encouraging signs of a soft-landing scenario for both the US and global economy. The Australian economy also appears on track for a soft landing in 2024 followed by a growth pick up next year in response to lower policy rates.

While it may not be a perfectly smooth ride, with valuations looking compelling, and the prospect of easier monetary policy encouraging a pick-up in growth over the next 12 to 18 months, we expect the small company asset class to perform well over the coming year and most likely beyond.

My thoughts on ASX small-cap shares

I agree with Wilsons, there are a number of attractive opportunities to be found on the ASX. I’m personally looking closely at names like Airtasker Ltd (ASX: ART) and Close The Loop Ltd (ASX: CLG) which are growing revenue, improving margins and have appealing growth potential.

Some small-cap names have already soared in the last few months, with a few taken over by buyers.

I think quality smaller companies are capable of outperforming bigger businesses over the long term because their growth runways are longer.

The post Want to make big returns? ASX small-cap shares are poised to outperform appeared first on The Motley Fool Australia.

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More reading

• 2 ASX stock picks with explosive potential
• Where I’d invest $5,000 into ASX small-cap shares aiming for big growth

Motley Fool contributor Tristan Harrison has positions in Close The Loop. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Close The Loop. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Airtasker. The Motley Fool Australia has recommended Close The Loop. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The ASX dividend share Step One Clothing Ltd (ASX: STP) has seen its share price rocket to the stars over the past year. Can the online retail company still be good value after its mammoth rise?

Step One generated good growth in the FY24 first-half result, which was much more than the market had expected a year ago.

Earnings recap

The ASX dividend share reported 25.5% revenue growth to $45.1 million, a gross profit margin improvement from 80.7% to 81.2%, earnings before interest, tax, depreciation, and amortisation (EBITDA) growth of 35.6% to $10.1 million, and net profit after tax (NPAT) growth of 34.7% to $7.1 million.

Revenue growth in Australia was only 8.9% to $26.2 million, while the United Kingdom saw 38% revenue growth to $14.7 million, and revenue in the United States jumped 256% to $4.1 million. Amazon sales have played an important part in sales growth in the UK and US, with the platform accounting for 6.1% of HY24 revenue, up from 4.9% in the prior year.

The company advised the number of customer orders increased by 25.1%, while the average order value (AOV) increased by 4.7% to $94.47. this was driven by a “greater emphasis on upselling and volume-based promotional discounts.”

It paid a dividend per share of 4 cents.

Is the Step One share price a buy?

The company is doing a number of things to try to grow in Australia, the UK and the US, while ensuring a balance between growth with profitability across all markets.

The ASX dividend share wants to grow its women’s line, expand the customer funnel through partnerships with retailers and other organisations, broaden sales channels and marketplaces, expand the distribution of the women’s lines to the US, invest in its capabilities and product innovation, and continue to improve the customer experience.

Based on the forecast numbers on Commsec, the Step One share price is valued at 30x FY24’s estimated earnings and 27x FY25’s estimated earnings.

The business will need to keep growing at a good pace to justify the current valuation, but the outlook is bright, particularly if Step One can expand in other countries such as Canada, New Zealand and so on.

The post This ASX dividend share has soared 450% in a year! Is it still a buy? appeared first on The Motley Fool Australia.

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More reading

• 2 ASX stock picks with explosive potential

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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 Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The team at Goldman Sachs has been busy reviewing all the results that were released during earnings season.

Three ASX tech stocks that the broker was pleased with are listed below. Here’s what the broker is saying about their results or outlooks:

Life360 Inc (ASX: 360)

This location technology company was a standout for Goldman Sachs during earnings season. It commented:

360’s re-rate is only beginning, in our view, as it delivers solid subscription and EBITDA growth from the core business while opening up significant upside optionality via advertising monetisation. FY24E EBITDA guidance appears conservative relative to the operating leverage demonstrated in FY23A and provides visibility to >50% growth in both FY24/25E.

Goldman has a buy rating and $14.20 price target on the ASX tech stock.

Macquarie Technology Group Ltd (ASX: MAQ)

Goldman was impressed with this data centre, telco, and cloud services company’s performance and believes is well-positioned for growth. It also highlights its attractive valuation compared to peers. It said:

MAQ is poised to demonstrate the acceleration of its data centre growth pipeline through 2024, both from IC3W (now DA approved and underway, with potential to be upsized from 38MW to 45MW) and a new site in the Sydney metro area. The core Cloud Services / Telco businesses are performing well in the interim, and valuation remains compelling relative to listed peers.

The broker has a buy rating and $93.00 price target on its shares.

Readytech Holdings Ltd (ASX: RDY)

A final ASX tech stock that has been given the thumbs up is enterprise software provider Readytech. While the broker wasn’t blown away by its update, it is feeling very positive on its outlook. It said:

RDY slightly pushed out its revenue targets, though we highlight that the 1H24 miss was driven by lumpy implementation revenue as subscription continued to grow at a mid-high teens rate. The margin inflection point has arrived and we see material upside to both Visible Alpha Consensus Data estimates and valuation upon execution towards mid-term targets.

Goldman has a buy rating and $4.25 price target on its shares.

The post Goldman Sachs says these ASX tech stocks are top buys appeared first on The Motley Fool Australia.

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More reading

• Long-term investing: 3 top ASX stocks you can buy for under $20 a share
• Top brokers name 3 ASX shares to buy next week
• Here are the top 10 ASX 200 shares today
• Why Life360, Evolution Mining, Magnetic Mining, and Zip shares are rising today
• Here are the top 10 ASX 200 shares today

Motley Fool contributor James Mickleboro has positions in Life360. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group, Life360, and ReadyTech. The Motley Fool Australia has recommended ReadyTech. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Telix Pharmaceuticals Ltd (ASX: TLX) shares are up approximately 75% over the last 12 months.

Investors have been buying the ASX 200 biotech stock after it reported explosive growth in FY 2023 last month.

The company delivered a 214% increase in total revenue to $502.5 million thanks to strong demand for its Illuccix product.

Also growing rapidly was the company’s adjusted EBITDA, which more than doubled to $58.4 million from a loss of $67.8 million a year earlier.

The good news is that the team at Bell Potter believe that its strong growth can continue. For example, the broker is forecasting a 45% jump in EBITDA to $84.9 million in FY 2024.

And while Bell Potter then expects a decline in EBITDA to $68.7 million in FY 2025 due to an increase in costs, it believes the ASX 200 biotech stock’s EBITDA will then rebound massively the following year to a whopping $211.1 million.

Is this ASX 200 biotech stock good value?

Despite its strong gain over the past 12 months, Bell Potter still sees plenty of value in the company’s shares.

This morning, it has retained its buy rating with an improved price target of $14.50. This implies potential upside of 24% for investors over the next 12 months.

As well as being impressed with the ASX 200 biotech stock’s performance in FY 2023, the broker sees big positives from the announcement of plans to acquire ARTMS. It is a company specialising in the physics, chemistry and materials science of cyclotron produced radionuclides. Bell Potter commented:

The acquisition is crucial for the supply of 89Z and the pending roll out of Zircaix for renal cancer imaging. TLX is validating multiple production locations for 89Zr in the US using the ARTMS core technology. The company also owns significant quantities of ultra pure 89Y being the raw material for production of 89Zr.

We estimate the yield is ~50x that from a Gallium generator and will potentially allow for greater dosing flexibility and vastly reduce the cost of goods for at least a portion of the Illuccix doses sold. With this in mind the company intends to amend the NDA for Illuccix to support ARTMS QIS cyclotron production.

The post Buy this ASX 200 biotech stock for a 20%+ return appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Monday
• Here are the top 10 ASX 200 shares today
• $9,000 in savings? Here’s how I’d try to turn that into $516 a month of passive income
• Here are the top 10 ASX 200 shares today
• If you’d put $20,000 in this ASX healthcare stock during COVID-19, you’d have $257,000 now

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ASX uranium stock Nexgen Energy (Canada) CDI (ASX: NXG) may play a major part in the forecast significant growth of nuclear power. Leading fund manager L1 is a fan of this business, despite a recent dip in the price of the commodity.

Uranium prices fell back from 15-year highs recently following stronger-than-expected 2024 production guidance from a big player in the sector, Cameco, and potential US sanctions on Russian nuclear fuel exports not going ahead.

Why L1 is so excited by this ASX uranium stock

The fund manager believes the uranium market still has positive fundamental supply and demand tailwinds over the medium to long term.

NexGen is preparing to develop the world’s largest uranium deposit, Arrow, located in the Saskatchewan region of Canada.

Once up and running, this resource would be a “major, new, strategic Western source” of supply that can address the anticipated market deficit.

L1 said Arrow had the potential to generate more than C$2 billion of cash flow annually at the current uranium spot prices. This was “highly attractive” due to NexGen’s market capitalisation of C$5.8 billion.

In the company’s base case, at $50 per pound of the resource, the company suggests it could make C$1.04 billion of average annual after-tax net cash flow. Under this situation, the company was expected to make an after-tax internal rate of return of 52.4%.

Latest update

The NexGen share price is sometimes affected by the progress updates that the ASX uranium stock reveals.

On 9 November 2023, the company announced it had received ministerial environmental assessment approval under The Environmental Assessment Act of Saskatchewan to proceed with the development of the project.

During 2023, NexGen further advanced the front-end engineering and design for the Rook I Project / Arrow deposit while continuing to progress the project through the critical path detailed engineering procurement phases.

NexGen share price snapshot

The NexGen share price has more than doubled in the past 12 months.

The post This ASX uranium stock could potentially make $2 billion in annual profit appeared first on The Motley Fool Australia.

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More reading

• 4 ASX ETFs for smart investors
• There’s an ‘opportunity brewing’ with this ASX 200 share
• 3 ASX dividend shares to buy with ~5% yields for an income boost
• The most profound lesson from Lovisa’s results. What could it mean?
• 5 things to watch on the ASX 200 on Monday

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 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.

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There are a great number of exchange-traded funds (ETFs) for investors to choose from, but which ones could be top buys in March?

Let’s take a look at four options for smart investors to look at this month:

BetaShares Asia Technology Tigers ETF (ASX: ASIA)

The first ASX ETF to look at is the BetaShares Asia Technology Tigers ETF. It could be a top option if you’re feeling bullish on the long-term outlook of the Asian economy. That’s because this popular ETF provides investors with easy access to the biggest and best companies in the region. This includes Tencent and Alibaba.

BetaShares Global Cybersecurity ETF (ASX: HACK)

The BetaShares Global Cybersecurity ETF could be another ASX ETF to buy. It gives investors access to a global cybersecurity sector that is forecast to grow materially over the next decade due to the rising threat of cybercrime. Among the companies included in the fund are Accenture, Cisco, and Palo Alto Networks.

BetaShares NASDAQ 100 ETF (ASX: NDQ)

Another ASX ETF to look at is the BetaShares NASDAQ 100 ETF. It gives investors easy access to 100 of the largest non-financial shares on the famous NASDAQ index. These are the absolute titans of our age. This includes many of the world’s largest tech companies such as Apple, Microsoft, and Nvidia.

Vanguard MSCI Index International Shares ETF (ASX: VGS)

Finally, the Vanguard MSCI Index International Shares ETF could be a good option for investors that are looking to diversify a portfolio. That’s because this popular ASX ETF provides easy access to approximately 1,500 of the world’s largest listed companies (excluding Australia). Among its holdings are companies from a range of countries including the the US, Japan, the UK, France, Canada, and the Netherlands.

The post 4 ASX ETFs for smart investors appeared first on The Motley Fool Australia.

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More reading

• 2 fantastic ASX ETFs to buy for global investing in March
• 2 ASX ETFs for beginner investors to buy in March
• Are these record-breaking ASX ETFs now too expensive to buy?
• Why Vanguard MSCI Index International Shares ETF (VGS) is a great buy for almost anyone
• 3 excellent ASX ETFs to buy in March

Motley Fool contributor James Mickleboro has positions in BetaShares Nasdaq 100 ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Accenture Plc, Apple, BetaShares Global Cybersecurity ETF, BetaShares Nasdaq 100 ETF, Cisco Systems, Microsoft, Nvidia, and Palo Alto Networks. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Alibaba Group and has recommended the following options: long January 2025 $290 calls on Accenture Plc, long January 2026 $395 calls on Microsoft, short January 2025 $310 calls on Accenture Plc, and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has positions in and has recommended BetaShares Global Cybersecurity ETF and BetaShares Nasdaq 100 ETF. The Motley Fool Australia has recommended Apple, Betashares Capital – Asia Technology Tigers Etf, Nvidia, and Vanguard Msci Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Broker Wilsons has named S&P/ASX 200 Index (ASX: XJO) share Breville Group Ltd (ASX: BRG) an opportunity as it goes through a cyclical recovery.

Breville was founded in 1932 in Sydney and now sells kitchen products in more than 70 countries around the world.

It owns a number of brands including Breville, Sage, Lelit, Baratza, ChefSteps and Beanz.com (a coffee subscription and delivery).

Why Wilsons added Breville shares to the portfolio

There are five factors that make Breville a “high-quality cyclical, according to Wilsons.

First is a high-quality management team, with CEO Jim Clayton driving a successful growth strategy.

Second is its resilience – it has managed to grow earnings over the last two years, despite the difficult economic conditions and distortions after COVID-19.

Third is its consistency of margins. The business has maintained its profit margins over this cycle, “demonstrating the levers Breville has at its disposal”.

Fourth is its balance sheet, Wilsons said the ASX 200 share is expected to be in a net cash position at the end of FY24, reducing the net interest expense and also providing “dry powder” for the next few years.

Wilsons suggests the balance sheet improvement is underappreciated, with effective inventory management and a subsequent reduction in net debt.

Finally, the broker said that Breville had a strong return on invested capital (ROIC) of 20%.

Why the ASX 200 share could grow earnings

Wilsons points to new product launches as a profit driver, with its sustained investment in research and development ensuring a healthy pipeline of “exciting new releases” catering to diverse geographic preferences, and expanding product categories, fuelling future growth.

The business has entered a number of new markets, establishing “a strong presence” in the United States, Europe and Asia Pacific. Since FY19, it has entered 17 new countries. Management has said it’s halfway through its expansion, with anticipated completion within eight to ten years. There is also the possibility of expanding in China and India.

The broker also suggested the profit margins can keep growing thanks to economies of scale through global expansion.

Wilsons says the Breville share price valuation is “reasonable” because earnings are expected to grow by approximately 13% per annum between FY24 and FY26.

The post There’s an ‘opportunity brewing’ with this ASX 200 share appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Monday
• Here’s how the ASX 200 market sectors stacked up this week
• Here are the top 10 ASX 200 shares today
• Why is this ASX 200 share rising at nearly quadruple the rate of its peers?
• Is this surging ASX 200 stock an under-the-radar buy?

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 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.

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If you’re scouting for some new ASX dividend shares to buy, then it could be worth considering the three listed below.

Here’s why analysts think these high-yield shares are in the buy zone:

Rio Tinto Ltd (ASX: RIO)

The first ASX dividend share that could be a buy is Rio Tinto.

It is one of the largest miners in the world and the owner of a high-quality portfolio of operations across multiple commodities.

The team at Goldman Sachs is positive on the miner and recently put a buy rating and $138.30 price target on its shares.

As for dividends, the broker is expected fully franked dividends per share of US$4.39 (A$6.62) in FY 2024 and then US$4.61 (A$6.96) in FY 2025. Based on the latest Rio Tinto share price of $119.89, this will mean yields of approximately 5.5% and 5.8%, respectively.

Telstra Corporation Ltd (ASX: TLS)

Goldman Sachs also think that Telstra could be an ASX dividend share to buy right now.

It has a buy rating and $4.55 price target on Telstra’s shares.

In respect to income, the broker is forecasting fully franked dividends of 18 cents per share in FY 2024 and 19 cents per share in FY 2025. Based on the current Telstra share price of $3.83, this equates to yields of 4.7% and 5%, respectively.

Universal Store Holdings Ltd (ASX: UNI)

Another ASX dividend share that has been named as a buy is Universal Store.

It is the youth fashion retailer behind the Universal Store, Perfect Stranger, and Thrills brands.

Bell Potter is a fan and currently has an add rating and $5.65 price target on its shares.

As for income, the broker expects fully franked dividends per share of 24 cents in FY 2024 and then 31 cents in FY 2025. Based on the current Universal Store share price of $4.61, this will mean yields of 5.2% and 6.7%, respectively.

The post 3 ASX dividend shares to buy with ~5% yields for an income boost appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has positions in Universal Store. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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In the past four months, the Lovisa Holdings Ltd (ASX: LOV) share price has soared by more than 60%. A majority of that gain was sparked by reporting season, with an impressive FY24 first-half result.

There were a number of pleasing metrics in the result, including net profit after tax (NPAT) growth of 12% to $54.5 million and 31% growth of the dividend per share to 50 cents.

For me, there was a particularly good theme that came through.

Scalability of the business

Lovisa has grown its store network considerably over the last several years, and the good store growth continued in the first half of FY24 – it added another 53 net new stores, with seven new stores in Australia, 12 new stores in France and 17 new stores in the USA.

The company isn’t just growing its store count for the sake of it. Lovisa’s products seem to have global appeal because it’s growing in numerous markets. It has recently entered a number of markets including Hong Kong, Taiwan, China, Vietnam, Namibia, Botswana, Spain, Italy, Hungary, Romania, Canada and Mexico.

It seems it’s nowhere near done growing.

This store growth is translating into sales. Lovisa’s revenue grew by 18.2% to $373 million in HY24.

The company reported some profitability metrics rose faster than revenue – it’s a great sign of scalability. Gross profit increased 18.9% to $301.1 million and earnings before interest, tax, depreciation and amortisation (EBITDA) grew 23.5% to $128.4 million.

Net profit after tax didn’t grow as strongly because of the adjustment of higher debt costs.

Pleasingly, the company advised that in the first seven weeks of the second half of FY24, comparable store sales were up 0.3%, while total sales were up 19.6%, with both of those growth measures stronger than the FY24 first half.

The comparable store sales growth shows the growing store network isn’t cannibalising sales.

Lovisa must invest some money upfront to enter a new country and open new stores, and then the revenue (and profit) flows in the subsequent months and year (or two). Lovisa could report good growth in the next 12 months, even if it stopped opening new stores today.

The business is delivering good operating leverage, as we can see with the growth of EBITDA faster than revenue.

With the store network’s huge potential growth in the coming years, very positive foundations are being built for solid profit increases over the rest of the 2030s, which can support Lovisa shares and dividends.

Lovisa share price valuation

The estimate on Commsec suggests Lovisa could generate earnings per share (EPS) of $1.167 in FY26 and potentially pay a (partially franked) dividend yield of 3.2%. That would put Lovisa shares at 27x FY26’s estimated earnings.

The post The most profound lesson from Lovisa’s results. What could it mean? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Lovisa. 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.

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