Here’s an under the radar ASX growth share with 22% upside

This ASX share could be a strong buy…

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The Adairs Ltd (ASX: ADH) share price is pushing higher on Wednesday morning with the rest of the market.

At the time of writing, the furniture and homeware retailer’s shares are up 1.5% to $3.93.

This means the Adairs share price is now up 15% in 2021.

Is it too late to invest?

The good news for investors is that one leading broker believes the Adairs share price can still rise materially from here.

According to a recent note out of Morgans, its analysts have put an add rating and $4.80 price target on the company’s shares. Based on the current Adairs share price, this suggests that it could still rise by a further 22% over the next 12 months.

But it gets better. Morgans also expects the company to pay a fully franked 23 cents per share dividend in FY 2022. This represents a generous 5.8% dividend yield, which brings the total return on offer here to almost 28%.

Why is Morgans so bullish?

Morgans notes that Adairs has agreed to acquire Focus on Furniture for $80 million, which it feels is a fair price.

The broker commented: “We think ADH has got the business for a decent price and, while we concede it increases the group’s exposure both to the housing market and bricks and mortar retail (neither of which are terribly fashionable right now), we believe it will prove complementary to the core business and may offer enhanced opportunities for network expansion.”

And while the broker acknowledges that the acquisition hasn’t helped dispel the view that Adairs could struggle for organic growth post-COVID, it doesn’t believe this is the case. In fact, Morgans is forecasting strong earnings growth through to FY 2024.

Its analysts explained: “It seems to us that the market sees ADH as a COVID beneficiary that is unlikely to deliver much in the way of organic growth over the next few years. Buying Focus perhaps hasn’t done anything to dispel this notion. But we think that’s unfair. Our estimates are for an EPS CAGR of 21% between FY20 and FY24F. The acquisition of Mocka and Focus play a large part in driving this, but even organically, a combination of a very strong loyalty programme, GLA growth and cost efficiencies underpin a growth story that we think is going under the radar.”

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended ADAIRS FPO. The Motley Fool Australia owns and has recommended ADAIRS FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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