Expansion Into US Teamwear And Inclusion Of Craft Shoes In Swedish Chains Will Improve Future Prospects

Key Takeaways

• Expansion into the U.S. teamwear market and Craft shoe distribution could drive significant future revenue growth and market share gains.
  
• Increased investment in sales and marketing aims to enhance long-term revenue growth, despite short-term margin pressures.
  
• Slow growth in key markets, ineffective sales investments, and geopolitical risks challenge revenue and margins, with declining Sports & Leisure and problematic acquisition strategies.

Catalysts

Designs, acquires, and develops brands and products in the corporate, sports, gifts, and home furnishings sectors in Sweden, the United States, Central Europe, rest of Nordiac countries, Southern Europe, and internationally.

• Expansion into U.S. teamwear market is underway, with stock buildup expected in Q4, Q1, and Q2 of next year, indicating potential for significant revenue growth.
  
• Expected inclusion of Craft shoes in larger Swedish chains could lead to increased distribution and revenue growth, particularly if expansion to significant outlets occurs.
  
• Positive reception of new high-tech shoe product launched in New York suggests potential future revenue growth and market share increase in the sports segment.
  
• Continued market share gains in weak economic environments suggest potential for heightened revenue and earnings when overall market conditions improve.
  
• Ongoing investment in sales and marketing, particularly in the U.S. and Germany, expected to enhance revenue growth in the longer term, offsetting short-term impact on margins.

New Wave Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming New Wave Group's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.2% today to 13.3% in 3 years time.
• Analysts expect earnings to reach SEK 1.6 billion (and earnings per share of SEK 11.82) by about February 2028, up from SEK 880.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK1.9 billion in earnings, and the most bearish expecting SEK1.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.7x on those 2028 earnings, down from 17.7x today. This future PE is lower than the current PE for the GB Luxury industry at 17.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.1%, as per the Simply Wall St company report.

New Wave Group Future Earnings Per Share Growth

Risks

• The company faces challenges with slow growth in key markets, such as Germany and Sweden, which could negatively impact its revenue growth in the short to medium term.
  
• Continued investments in sales and marketing are not yet yielding the desired increase in sales, which could pressure net margins if the trend persists.
  
• The Sports & Leisure segment has faced a continuous decline in Sweden down for 11 quarters, potentially affecting long-term revenue and earnings growth in that area.
  
• Acquisition strategies are hindered by companies in panic and rushed sales processes, posing a risk to making prudent investment decisions which could constrain revenue growth if not managed carefully.
  
• The uncertain geopolitical environment, such as possible new tariffs imposed by the U.S., may increase costs and alienate certain market segments, potentially squeezing future net margins and earnings.

Valuation

• The analysts have a consensus price target of SEK136.5 for New Wave Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK11.8 billion, earnings will come to SEK1.6 billion, and it would be trading on a PE ratio of 13.7x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of SEK117.5, the analyst price target of SEK136.5 is 13.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.