I feel it is fair to say that last year was a reasonably disappointing one for shareholders of Premier Investments Limited (ASX: PMV).
Its shares got off to a flying start and by March had rallied a massive 26% to an all-time high of $17.92. But since then its shares have given back all their gains, leaving them priced at just $13.93 today.
After such a sharp drop in its share price over the last three quarters, is the owner and operator of brands including Peter Alexander, Smiggle, and Just Jeans in the buy zone now?
At 18x estimated FY 2017's earnings according to CommSec and with strong growth prospects I would say it is.
The jewel in the crown for the company and in my opinion a key reason to invest is its high-margin Smiggle brand. The stationery store has gone from strength to strength in recent years and most recently delivered a 41.8% increase in sales to $188 million in FY 2016. As a result the brand accounts for approximately 18% of total company sales.
A big driver in the brand's growth has been its UK expansion. At the end of FY 2016 Smiggle had 64 stores in operation in the UK and a quick look on their website reveals that this has increased to 90 stores today.
Although there are concerns over how the Brexit will impact both trading and its results, so far it has had a minimal impact.
Late last year the company revealed that its sales post-Brexit were equal to or better than pre-Brexit trading, with strong like-for-like sales growth continuing. In addition to this the company has long range hedges against currency movements in place.
As a result the company continues to be bullish on its expansion plans in the UK and expects to see the store count surpass 200 stores by the end of 2019.
Furthermore, the brand has also recently entered the Malaysia, Hong Kong, and Singapore markets. Whilst the market opportunity appears smaller than in the UK, management still sees the potential for upwards of 60 store openings in the region within the next few years.
I believe this all points to solid long-term earnings growth for the company, making it a great buy and hold option today. Especially with its shares expected to provide a fully franked 3.8% dividend in FY 2017.
All in all, I would rate Premier Investments as one of the best buys in the retail industry and a far better option than industry peers Kathmandu Holdings Ltd (ASX: KMD), Myer Holdings Ltd (ASX: MYR), and PAS Group Ltd (ASX: PGR).
