scroll

Is Lovisa (LOV) a buy?

Advanced Search

Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.

Ask a question

The Latest Q&A

Question asked 30/11/2024

Is Lovisa (LOV) a buy?

Hi MM team, Thanks in advance for considering my question. I went to Chadstone last weekend with my daughter, and for the first time I entered a Lovisa store, which was quite busy. I never quite understood how a business that sells disposable jewellery could be worth AUD3bn, but after spending 15 min inside the store (and then going through the financials in more detail), I think the penny dropped for me. Questions are being asked about the growth profile of the business, and whether the store roll out is at risk under a new CEO. But at 22% discount of its 5 year forward PE average (according to the stock report in the MM portal), aren't those risks more than discounted in the current valuation? On relative PE terms, LOV still looks more expensive than JBH and others in retail; so do you see LOV's current share price as a good entry point, or is JBH or Nick Scali better options for retail exposure at the moment? Thanks, Angela

Answer

Hi Angela,

LOV has been a really impressive growth story since COVID and as you have now done, there’s never a better test than entering a store to get a feel. They operate on an ~80% pre-tax profit margin which is pretty phenomenal!

Compared to historical valuations LOV is indeed cheap:

JBH +42%, NCK +25% and LOV -8% : versus their average P/E over the last 5-years.

For what it’s worth, my daughters used to shop at LOV but have since stopped highlighting the lower quality of their products.

While the store roll-out issue has been well flagged, the other issue is the former chief executive, Shane Fallscheer, is rolling out a competing business called Harli + Harpa, addressing the concerns of my daughters i.e. better-quality products, at a higher but still attractive price point. The impact of this competitor is the unknown and explains the lower multiple the market is now ascribing to LOV.

For comparison;

JBH is a quality but fairly mature business that MM believes is expensive, trading on an Est 21.8x for FY25.
NCK delivered a disappointing trading update in October which saw the stock correct ~19%, we like this retailer into weakness believing it has growth options into the UK.

LOV is trading into our buy area discussed in September, but we think the risks associated with a new challenger are hard to quantify.

We intend to stay on the sidelines with LOV for now.

chart

Lovisa Holdings Ltd (LOV)

LAST UPDATED 27/11/2024 14:28

Latest Reports

Afternoon report 05/12/2024

The Match Out: ASX up again as mid-cap Gold stocks shine

While the market continues to edge up, it’s becoming very stock specific and we are seeing some obvious loss of momentum in to fresh all-time highs. Some profit taking in banks becoming obvious while resources by in large remain friendless.