Why the Harvey Norman Holdings Limited share price is soaring today

Shares in Harvey Norman Holdings Limited (ASX:HVN) took off this morning. Could they see another leg up?

| 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

Shares in homewares retailer Harvey Norman Holdings Limited (ASX: HVN) enjoyed a strong start to Friday's trade on the ASX. The Harvey Norman share price opened up by more than 3% before the shares eased off a little through the session.

Including dividends, Harvey Norman shares have returned investors more than 10% over the last 12 months. It's even more impressive that the shares have rallied by more than 23% in a little over two months since mid-December.

Why did this happen to Harvey Norman shares?

This morning, Harvey Norman revealed a healthy result for the six months ending 31 December 2015. The group grew net profit after tax (NPAT) by nearly 31% to $185.5 million.

A strong performance by the franchise stores helped to drive profits, leading to a $10 million decline in the 'tactical support' Harvey Norman extends to its franchisees in the form of rent, marketing and fee relief.

Global sales rose by 8% to $3.33 billion — helped to some extent by currency appreciation of the Euro and UK pound, but also by market conditions that have continued to benefit Harvey Norman.

Chairman Gerry Harvey struck a bullish tone on the outlook for retail businesses linked to the housing market. That includes not just Harvey Norman, but also stocks like Myer Holdings Ltd (ASX: MYR), JB Hi-Fi Limited (ASX: JBH), Fantastic Holdings Limited (ASX: FAN) and Nick Scali Limited (ASX: NCK).

Mr Harvey said: 'Australian macroeconomic conditions have had an upward trend for three years and have been favourable for consumption in the homemaker and lifestyle categories. We anticipate robust construction and housing activity to continue this year, in response to pent-up demand and, particularly in New South Wales, Victoria and the ACT, dwelling starts [that] are materially above long term averages.'

It's clear that Harvey Norman has enjoyed a strong tailwind from the Aussie housing construction boom. The group's competitive position is also likely to benefit from the demise of former competitor Dick Smith Holdings Ltd (ASX: DSH), now moving toward liquidation. This week my colleague John Hopkins discussed the impact of Dick Smith's failure here.

What's next for Harvey Norman Holdings Limited?

Once owners finish building a house, typically the next things they buy are furniture and electronics.

Harvey Norman looks well placed to continue to capitalise on changes in homemaker consumer demand. As a leading indicator of that demand in Australia, investors will closely watch monthly and quarterly trends in housing completions, which are currently running at record levels.

Although it remains a concern that Harvey Norman has diversified into ventures like mining camp accommodation and dairy farming, the group's core business looks healthy and the prospects look reasonable.

Foolish takeaway

Remember when the mainstream press ran front-page headlines in October 2014 that branded Harvey Norman the world's most overpriced stock?

Since then, Harvey Norman shares have gone up by more than 27% — paying out healthy dividends along the way.

It goes to show that in the long run, a stock with sound economic fundamentals will always triumph over the forces of short-term market sentiment.

Motley Fool contributor Tim Dohrmann 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

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

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 »