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Lovisa Holdings Limited (ASX:LOV), which is in the specialty retail business, and is based in Australia, saw a significant share price rise of over 20% 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? Let’s examine Lovisa Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
View our latest analysis for Lovisa Holdings
Is Lovisa Holdings still cheap?
According to my valuation model, the stock is currently overvalued by about 26.5%, trading at AU$11.32 compared to my intrinsic value of A$8.95. This means that the buying opportunity has probably disappeared for now. But, is there another opportunity to buy low in the future? Since Lovisa Holdings’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of growth will Lovisa Holdings generate?
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’s earnings over the next few years are expected to increase by 32%, 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? It seems like the market has well and truly priced in LOV’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe LOV should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on LOV for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for LOV, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.