Why brokers think Accent shares are a ‘shoe-in’ for ASX investors

Some brokers think that investors should be running towards Accent.

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shoes asx share price represented by white shoes against pink and blue background AX1 share price downgrade

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Key points

  • Experts believe that the Accent share price is a bargain after recent sell-off
  • UBS has a price target of $2.50 on the ASX retail share
  • Accent recently said that its sales performance was improving

The Accent Group Ltd (ASX: AX1) share price offers a significant investment opportunity, according to some brokers.

Accent is an ASX retail share that sells a wide array of shoes through a range of different brands and stores. The company owns and sells some of the brands and acts as the distributor for others. Well-known brand names it deals with include Glue Store, Nude Lucy, Skechers, Stylerunner, The Athlete’s Foot, Vans and Timberland.

Brokers think the Accent share price could sprint higher

Brokers UBS and Morgan Stanley are both very optimistic about where the company could be headed over the next 12 months.

UBS has a price target on Accent of $2.50. That suggests a possible share price rise of 115% in a year.

The Morgan Stanley price target is $2.70 on the shoe business, implying a potential upside of more than 130%.

Given the Accent share price has fallen around 50% in the year to date, both of these price targets suggest a significant turnaround for the company.

These price ratings came after the latest trading update from the business.

Accent trading update

Accent said that sales performance from late February had improved compared to the 10% decline in like-for-like sales reported in the first eight weeks but remained subdued compared to expectations.

The ASX retail share said at the end of April 2022 that it continued to focus on a full price, full margin sales strategy, which helped grow the gross profit margin in percentage terms ahead of both expectations and last year.

Management noted that the overall inventory levels were in line with the plan, although the company continued to experience some delays and cancellations from third-party brand partners.

Initiatives to grow profit

If the business can grow profitability, then this could help the Accent share price.

It’s doing a number of things. Opening new stores is one of the main parts of the strategy – Accent said it was planning to open 140 stores in FY22 while closing stores where it could not achieve sustainable renewal terms.

Accent advised it was accelerating the growth plan for Glue Store, which continues to perform “strongly”. It also has an “ambitious” growth plan for Stylerunner, with a focus on Stylerunner The Label vertical apparel and store roll-out.

It’s growing the Trybe business and doing more The Athlete’s Store franchise buy-backs.

The ASX retail share is restructuring the Reebok distribution agreement to move to a new Australian distributor while at the same time securing access to a “full range” of Reebok products from that distributor for its multi-brand banners.

Accent share price valuation

Looking at the UBS estimates – the Accent share price is valued at 17x FY22’s estimated earnings and under 8x FY23’s estimated earnings.

The grossed-up dividend yield is projected by UBS to be 8.6% in FY22 and 16% in FY23.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Accent Group. 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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