The Adairs Ltd (ASX: ADH) share price has been out of form in recent weeks despite the release of a strong full year result last month.
Since this time in August, the homewares and home furnishings retailer's shares are down 9%.
Is the Adairs share price good value?
While the decline in the Adairs share price over the last few weeks has been disappointing, one leading broker believes it could be a buying opportunity.
According to a recent note out of Morgans, its analysts have upgraded the company's shares to an add rating with a $4.20 price target.
Based on the current Adairs share price of $3.89, this implies potential upside of 8% over the next 12 months excluding dividends.
And with Morgans forecasting a fully franked 22 cents per share dividend in FY 2022, this potential return stretches to just over 13.5% including them.
What did Morgans say?
Morgans was very impressed with Adairs' performance in FY 2021. And while the start of FY 2022 has been tough for the retailer because of lockdowns, it remains positive on the longer term. It also highlights that the Adairs share price is cheap in comparison to peers.
The broker said: "ADH's early FY22 experience is in line with most retailers who have reported to date, as store closures impact in-store sales, partially offset by online growth. There remains a lot to like about this investment case: 80% of sales coming from loyal Linen Lover members; GLA growth via new stores and upsizing; DC cost efficiencies to flow from 2QFY22; and 37% of sales online (inflated in FY21 by lockdowns) combined with a highly profitable store network."
"We upgrade to an Add rating (from Hold). Despite EPS revisions in FY22, ADH is one of the cheapest retailers in the sector (CY22F PE of <10x). ADH has a strong BS, loyal customer base and various growth options. There is of course a question mark over whether elevated GMs are sustainable long term, like most retailers. However, at this valuation, we see enough safety in the numbers," it added.
