Stock Analysis

Is Now The Time To Look At Buying Lovisa Holdings Limited (ASX:LOV)?

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ASX:LOV
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While Lovisa Holdings Limited (ASX:LOV) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the ASX. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Lovisa Holdings’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Lovisa Holdings

What's The Opportunity In Lovisa Holdings?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 10.0% below my intrinsic value, which means if you buy Lovisa Holdings today, you’d be paying a reasonable price for it. And if you believe the company’s true value is A$21.46, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that Lovisa Holdings’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Lovisa Holdings generate?

earnings-and-revenue-growth
ASX:LOV Earnings and Revenue Growth December 4th 2023

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Lovisa Holdings' earnings over the next few years are expected to increase by 81%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? LOV’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping tabs on LOV, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 1 warning sign for Lovisa Holdings you should be aware of.

If you are no longer interested in Lovisa Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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