Goldman Sachs has been running the rule over the small side of the retail sector and has picked out three small cap ASX stocks that it thinks are buys.
Here’s why the broker is tipping them as top options for investors this week:
Which ASX small cap stocks could be buys?
According to the note, the broker has named three small cap ASX stocks as buys.
These are footwear retailer Accent Group Ltd (ASX: AX1), online furniture retailer Temple & Webster Group Ltd (ASX: TPW), and youth fashion retailer Universal Store Holdings Ltd (ASX: UNI).
Goldman has explained that a number of factors have influenced its decision to name these stocks as buys in the current slowing consumer discretionary environment. It highlights:
We consider which of the discretionary retailers is (1) most exposed to a normalisation in margins; (2) those most resilient from a top line perspective and; (3) where we see valuation support.
The good news is that the three small caps named above tick these boxes for the broker. It adds:
TPW has limited exposure to CODB pressures given its pure-play online presence; we expect a strong competitive position to drive top line momentum (+17% FY23-25E CAGR) as TPW grows its market share of a growing online market; AX1 has resilient top line relative to other discretionary retailers given its predominantly footwear exposure and exposure to high growth global brands. We see upside to consensus estimates driven by margin expansion through secular growth in vertical/distributed brands; UNI has a relatively more favourable younger consumer exposure, an under-penetrated store network and margin upside through Perfect Stranger; with the stock trading on 8x FY24 P/E we believe valuation support limits further downside.
And while an honourable mention goes to fashion jewellery retailer Lovisa Holdings Ltd (ASX: LOV), the broker has concerns over its premium valuation and like-for-like sales expectations. It said:
We prefer Buy rated TPW (on CL)/AX1/UNI which are well-placed to deliver secular growth through market share gains (TPW), store roll out (UNI/AX1) and private label margin upside (TPW/UNI/AX1). LOV also stacks up well under this framework as the business is executing on a global store rollout, however we believe the market remains too optimistic on the outlook for LFL sales growth.
Goldman currently has price targets of $2.80 on Accent shares, $6.40 on Temple & Webster shares, and $5.05 on Universal Store shares.
