Shares in Lovisa Holdings Ltd (ASX: LOV) closed the day in the red on Tuesday and are down almost 6% over the past five days of trading.
The fashion jewellery retailer's share price has been struggling lately and has fallen from its previous high of $22.82 back in November. It's now trading in line with October 2021 levels.
Why then, with this recent pullback in trading, is UBS bullish on the outlook for Lovisa investors coming into 2022? Let's take a walk through and see for ourselves.
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Is Lovisa a buy?
The team at UBS reckon so, and have just initiated coverage of the company with a buy rating and valuation of $21.25 per share.
UBS reckons Lovisa's extended bull run on the chart has the legs to continue, even if its share price has already gained more than 4x since the pandemic first hit.
With uncertainty amid the new Omicron COVID-19 variant, plus resurging case numbers in Australia, and in the United States and Europe, UBS thinks there are still plenty of positive catalysts in Lovisa's investment debate.
For instance, the firm notes that "COVID has had a negative impact on sales and EBIT margins due to store closures, yet there are reopening tailwinds and, from FY23 EBIT margin expansion due to operating leverage".
A spike in seasonal sales from the economy reopening is a clear upside driver in UBS' modelling on the company, which will inflect positively on its share price, the firm says.
Not only that, UBS reckons that Lovisa's current premium is justified, even if it is trading at a forward price-to-earnings (P/E) ratio of around 47x UBS' FY22 estimates.
For reference, the median P/E of the S&P/ASX 200 Retailing Index (AXRTJD) is 25.5x, meaning Lovisa is commanding an 84% premium compared to most of its peers. And this is a figure UBS reckons the company is worth paying for at this point in time.
Its price target of $21.25 implies an upside potential of more than 12% at the time of writing. Meanwhile, Morgan Stanley, Morgans and Canaccord Genuity are also bullish on Lovisa, each valuing the company a buy at $21, $22.24 and $20.40, respectively.
Lovisa share price snapshot
The Lovisa share price has fared well these past 12 months, having climbed more than 73% in that time. It's got there after rallying over 67% this year to date.
Over the past month it has reversed course, however, and is now 17% in the red after sliding almost 6% this past week alone, based on the share price at the time of writing.
