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How Lovisa Holdings Limited (ASX:LOV) Could Add Value To Your Portfolio

Simply Wall St

Attractive stocks have exceptional fundamentals. In the case of Lovisa Holdings Limited (ASX:LOV), there's is a financially-sound company with a strong history and an optimistic growth outlook. In the following section, I expand a bit more on these key aspects. For those interested in digging a bit deeper into my commentary, read the full report on Lovisa Holdings here.

Flawless balance sheet with reasonable growth potential

LOV is expected to churn out cash in the short term, with its operating cash flow predicted to expand by 52%. This is expected to flow down into an impressive return on equity of 76% over the next couple of years. Over the past few years, LOV has demonstrated a proven ability to generate robust returns of 69%. Not surprisingly, LOV outperformed its industry which returned 13%, giving us more conviction of the company's capacity to drive bottom-line growth going forward.

ASX:LOV Past and Future Earnings, September 21st 2019

LOV is financially robust, with ample cash on hand and short-term investments to meet upcoming liabilities. This suggests prudent control over cash and cost by management, which is a crucial insight into the health of the company. LOV appears to have made good use of debt, producing operating cash levels of 5.79x total debt in the prior year. This is a strong indication that debt is reasonably met with cash generated.

ASX:LOV Historical Debt, September 21st 2019

Next Steps:

For Lovisa Holdings, there are three essential factors you should look at:

  1. Valuation: What is LOV worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether LOV is currently mispriced by the market.
  2. Dividend Income vs Capital Gains: Does LOV return gains to shareholders through reinvesting in itself and growing earnings, or redistribute a decent portion of earnings as dividends? Our historical dividend yield visualization quickly tells you what your can expect from LOV as an investment.
  3. Other Attractive Alternatives : Are there other well-rounded stocks you could be holding instead of LOV? Explore our interactive list of stocks with large potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.