Lovisa Holdings Ltd (ASX: LOV) shares have taken a 26.5% dive over the past two months.
The affordable fashion jewellery retailer closed Friday’s session down 1.83% to $19.30 per share.
This is well down on its record high of $27.21 reached in April. Back then, we reported that Lovisa shares were the best performers of all the ASX 200 retail shares over the previous 12 months.
Lovisa had delivered a star performance with 46% price growth over that period. That’s pretty amazing when inflation is running hot and creating serious headwinds for most ASX retail shares.
But since April, Lovisa shares have tumbled.
Are they now back at fair value, and should you buy them?
Are Lovisa shares a buy for FY24?
There are many ways to determine the fair market value for an ASX share.
One way is by looking at the price-to-earnings (P/E) ratio.
In Lovisa’s case, the P/E is 28.33. That’s pretty high. A P/E of 15 or less is considered good value.
But if we canvas what the brokers think, we see they’re not so fussed by that relatively high P/E. In fact, they all think Lovisa shares can go northwards in FY24.
Let’s start with Bell Potter, which has the most bullish 12-month price target of $30.50.
This suggests a potential upside of 57% for investors from current levels.
Bell Potter said:
We also view LOV as a key pick in our Retail sector coverage with its ability to execute on the large global roll-out opportunity as a strong player in the fashion jewellery market while remaining relatively better immune to consumer spend pressures given the accessibility of the product from a price point perspective, once comps normalise.
Josh Clark of QVG Capital is also backing Lovisa shares for growth because of its younger customer demographic.
He reckons young people are “reaping the benefits of low unemployment without the headwinds of higher mortgage rates”.
In a recent memo, QVG Capital said Lovisa’s expansion portfolio was the key.
As my Fool colleague Tony reports, QVG Capital said:
We expect some level of ‘per store’ profit impact but realise that the bigger driver of value is how many stores they will eventually operate.
We don’t believe ‘per store economics’ are permanently impaired and see near term trading weakness as a [buying] opportunity.
Morgans is also tipping good potential upside from the current valuation in FY24.
It has an add rating on Lovisa shares and a price target of $26, implying a potential 34% upside.
The broker says:
LOV may just prove to be one of the biggest success stories in Australian retail.
LOV is showing every sign of becoming a global brand.
My Fool colleague Tristan outlines the company’s advantages as follows:
It’s easy for the company to expand because all it needs to do is open another store, which doesn’t take much capital because of the low cost of the stock.
The FY23 first half period saw 86 net new stores, with the company ending with 715 stores.
The ASX 200 share has a global footprint in over 30 countries, and it’s expecting to roll out more stores in existing and new markets.
I think it can add thousands more stores to its global network, particularly if it grows into China and/or India in the next decade.
According to Westpac Trading data, nine analysts have ratings on Lovisa shares.
Six analysts rate the stock a strong buy, two give it a hold rating, and one says it’s a strong sell.
Lovisa has a market capitalisation of $2.12 billion and a dividend yield of 4.13%.
