Why Premier Investments Limited shares are soaring today

Credit: Kira

The shares of Premier Investments Limited (ASX: PMV) were given a lift today after two leading investment banks upgraded the retailer’s shares.

According to reports in the Australian Financial Review, research notes out of both Credit Suisse and Citi this morning reveal that their analysts have upgraded their ratings on the owner and operator of the Smiggle and Peter Alexander brands.

Both investment banks have placed a neutral rating on its shares, having previously rated the shares as underperform and sell, respectively.

Although the ratings were only neutral, the market has reacted positively to the change in sentiment and its shares have jumped over 5% higher to $13.90.

This will no doubt be a big relief for shareholders. Since Premier Investments reported its full year results its share price has plunged by over 17%.

Although the company delivered a strong result which saw underlying earnings before interest and tax increase 26.1% to $133.3 million, the slowing like-for-like sales growth appeared to concern the market.

In the first half of FY 2016 like-for-like sales growth came in at 6.9%, but this slowed to just 3.5% by the end of the fiscal year. Considering the high multiples its shares were changing hands at, I’m not surprised to have seen the slowing like-for-like sales growth cause some investors to sell.

But with its shares now priced at 18x estimated FY 2017 earnings, I believe Premier Investments is a more appealing investment.

However I would suggest that investors hold off an investment until the company’s AGM on December 2. I expect management will provide an update on trading so far in FY 2017 which should reveal whether there has been an improvement in like-for-like sales growth.

Until then investors may want to consider investments in fellow retailers Bapcor Ltd (ASX: BAP) and Vita Group Limited (ASX: VTG).

Or if you are interested in quality dividend shares, then I would recommend this top dividend share instead. A strong yield and potential share price gains make this a great investment idea in my opinion.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of Bapcor. 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.

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