Can you double your money in Myer Holdings Ltd by 2020?

At least one prominent fund manager suggests that Myer Ltd (ASX:MYR) shares could be worth $1.70 by 2020, although he also advises that they are NOT a buy.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This is how Myer Holdings Ltd (ASX: MYR) has performed since listing in 2010:

Source: Google Finance
Source: Google Finance

Before dividends, your $10,000 is now worth just $2,350. And if you thought you dodged that bullet, you probably didn't – since it's a fair chance you super fund had some exposure somewhere along the way.

As it stands, I'm doubtful that many ordinary investors have held their investment that long – super investments excluded – meaning that thankfully, their losses will have been mitigated.

A conspicuous exception to this is significant shareholder Solomon Lew, chairman of retailer Premier Investments Limited (ASX: PMV), who has held his shares since their launch and recently indicated his disappointment at Myer's performance.

With the stock at a new all-time low of $0.85 – below their listing price – some will surely be wondering if they can make a quick buck now by speculating in Myer shares.

The answer is no. Readers may have seen an article by one prominent fund manager that was published by popular retail stockbroker Nabtrade, indicating that the value of shareholder equity in Myer could be $1.4 billion by 2020– or $1.70 per share, roughly double today's levels.

This valuation is built on modest forecasts provided by Myer itself, with management targeting 3% sales growth per annum and an increase in sales per square metre of 20% by 2020.

Myer recently tapped shareholders for another $200m in funding to drive a turnaround and chase the above sales growth targets.

However, as the fund manager noted in his article, "Companies tend to assume investment returns will be incremental, but this implies the competition stands still. This is rarely the case, and as such, a proportion of the benefits from reinvestment are usually competed away."

Until investors see signs that Myer can actually attract foot traffic to its stores and achieve investment-grade returns – your cash in the bank probably earns 3% p.a. – the stock is not a buying opportunity.

And if you're tempted to speculate, remember all the investors who were tempted to buy into falling businesses like Fortescue Metals Group Limited (ASX: FMG) and Worleyparsons Limited (ASX: WOR) earlier this year. Fortescue is down 25%, while Worleyparsons has dropped 38%.

Buying a company with a deteriorating underlying business is not a strategy for creating wealth.

Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »