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Is Now An Opportune Moment To Examine Lovisa Holdings Limited (ASX:LOV)?

Simply Wall St

Lovisa Holdings Limited (ASX:LOV), which is in the specialty retail business, and is based in Australia, received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to AU$13.90 at one point, and dropping to the lows of AU$11.30. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Lovisa Holdings's current trading price of AU$11.67 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Lovisa Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Lovisa Holdings

What is Lovisa Holdings worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 6.1% 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 that the stock is really worth A$12.43, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Lovisa Holdings’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of Lovisa Holdings look like?

ASX:LOV Past and Future Earnings, December 5th 2019

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. With profit expected to grow by 73% over the next couple of years, the future seems bright for Lovisa Holdings. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? It seems like the market has already priced in LOV’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. 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 optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Lovisa Holdings. You can find everything you need to know about Lovisa Holdings in the latest infographic research report. If you are no longer interested in Lovisa Holdings, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

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.

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. Thank you for reading.