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Accent Group Ltd (ASX:AX1) share price rockets higher on broker upgrade

Source: Company presentation

The market may have sunk lower today but the same cannot be said for the Accent Group Ltd (ASX: AX1) share price.

The retail group’s shares are up a sizeable 8% to $1.35 in late morning trade.

Why are Accent Group’s shares surging higher?

While investment sentiment has improved significantly since the release of its annual general meeting update at the end of last week, today’s gain is likely to be attributable to a broker note out of Morgans.

According to the note, the broker has upgraded the footwear retailer’s shares to an add rating with a $1.46 price target. This price target implies potential upside of a further 8% for its shares over the next 12 months.

The broker was pleased to see that Accent achieved like for likes sales growth of 2.5% for the first 20 weeks of FY 2019. This was largely in line with what its analysts had been expecting.

In addition to this, Morgans was impressed with the strong growth from its online sales channel.

Unlike Myer Holdings Ltd (ASX: MYR), which recently reported a slowdown in online sales growth, Accent Group is reaping the rewards of its investments in the channel over the last few years. Online sales grew a massive 80% over the prior corresponding period.

And while Christmas and the back to school period will have a big say in whether the company achieves its first half EBITDA growth guidance of 15% to 20%, Morgans appears confident that the risk is to the upside. Especially given its improving gross profit margins.

Should you invest?

While Accent Group is no longer the bargain buy it was just a week ago, I still see a lot of value in its shares at this level.

This could make it a good option for investors along with fellow cheap retail shares such as Adairs Ltd (ASX: ADH) and Super Retail Group Ltd (ASX: SUL).

And finally, here are three dividend shares that have been rated as buys recently.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Super Retail Group Limited. The Motley Fool Australia has recommended Accent Group. 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.

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