Is this the best retail share to buy on the ASX right now?

In July Oaktree Capital’s Howard Marks told CNBC that “The real big money in the investment world — the dependable money, the safe money — is made not betting that the things that have gone up a lot will continue but on betting that the things that have gone down and become unloved will rebound.”

But which share should you buy?

One of the most underappreciated results during earnings season in my opinion came from Adairs Ltd (ASX: ADH).

After a couple of years of struggles the home furnishings retailer returned to form in FY 2018 with a 45.4% increase in profits to $30.6 million.

This strong result was driven by a 14.3% increase in like for like sales, improved margins from less discounting, and strong online sales growth. The latter grew by an impressive 75% on the prior year to $42 million, demonstrating that Amazon’s arrival in Australia hasn’t been the company’s death knell after all.

Another positive was that management also noted that more shoppers are going into its stores and these customers are buying more frequently. This appears to show that its decision to focus on larger format stores is working well.

A further positive is that FY 2019 has started strongly. Management has advised that it has achieved like for like sales growth of 5.4% year-to-date.

Why invest?

I believe this strong start puts Adairs in a great position to achieve the analyst consensus earnings estimate of 21 cents per share in FY 2019. This means its shares are changing hands at just 11.5x estimated forward earnings and offer a trailing 5.6% fully franked dividend.

I expect that if Adairs continues to perform well in FY 2019 its shares could rerate to a more appropriate and higher earnings multiple like Accent Group Ltd (ASX: AX1) and Super Retail Group Ltd (ASX: SUL) did earlier this year.

The potential combination of a strong FY 2019 performance, the rerating of its shares, and a generous dividend yield make it my favourite share in the retail sector right now.

But it isn't the only retailer with a positive outlook and a growing dividend. This top retail share could also be in the buy zone today if you ask me.

OUR #1 dividend pick to grow your wealth now is revealed for FREE here!

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium, Super Retail Group Limited, and WiseTech Global. 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 Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.