It has been a great week for Pacific Brands Limited (ASX: PBG) shareholders who have seen incredible gains of over 10% just two days into the trading week.
Surprisingly, there is no news readily available to explain the outstanding performance of the share price, but there are a number of reasons why I believe this could be happening.
Although the share price is up over 20% year-to-date, the shares still look cheap in comparison to fellow retailer Premier Investments Limited (ASX: PMV). Premier Investments is one of my favourite retail shares on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) and I believe it thoroughly deserves to be trading at 22x estimated FY 2016 earnings.
Thanks to the success of its Smiggle and Peter Alexander brands, Premier Investments’ growth prospects are quite incredible. According to the brokerage arm of Commonwealth Bank of Australia (ASX: CBA), analysts expect it to grow earnings by just under 19% per annum for the next couple of years.
Interestingly Pacific Brands is also expected to grow its earnings at the same rate over the next couple of years. But trading at 17x estimated FY 2016 earnings puts the shares at a considerable discount to Premier Investments, possibly alluding to there being even more gains ahead.
The company’s key underwear brands Bonds and Berlei continue to strengthen. Its products are now being sold in some of the largest department stores across the world, including Macy’s, John Lewis, House of Fraser, and Galeries Lafayette. As well as this it is planning to open 20 Bonds stores across the Middle East, with the first store opening by the end of the year.
I believe this will prove to be a big boost to the company’s earnings growth over the next few years. At present 91% of the company’s revenue comes from its Australian operations, but I would expect this to be a very different story in a few years’ time.
With the Australian dollar largely expected to drop beneath 70 US cents eventually, this will make those international earnings all the more powerful and help fuel its long-term growth.
There are a number of high-quality shares for investors to consider buying on the ASX, like Premier Investments, and I would add Pacific Brands to the list today along with these three blue chip shares.