It was a day to forget for the Universal Store Holdings Ltd (ASX: UNI) share price on Wednesday.
Investors were spooked by the release of a trading update and sold down this ASX share by 24% to $3.15.
In light of this heavy decline, one leading broker is urging investors to pick up shares while they are cheap.
Is Universal Store a dirt cheap ASX share now?
According to a note out of Goldman Sachs, its analysts have responded to the update by retaining their buy rating with a new price target of $5.05.
While this price target has been reduced by almost a third, it still implies 60% upside for investors over the next 12 months.
In addition, despite downgrading its earnings and dividend estimates, Goldman estimates that Universal Store will still provide investors with fully franked dividend yields of 6.4% in FY 2023, 7.5% in FY 2024, and then 8.9% in FY 2025.
Why is Goldman staying positive?
While clearly the broker has been caught by surprise by the slowdown in spending from Universal Store's younger customer base, it remains very positive on the future of this ASX share and feels the worst (and more) is now factored into its valuation. It explains:
UNI has reported a soft trading update for 2H23. Trading weakened into April/May, as a result of a more cautious consumer, coupled with some planned store openings shifting into 1H24; margins remained robust however, with management reiterating comfort around inventory. Despite external headwinds causing earnings momentum to slow, we continue to highlight the quality of the UNI business and growth outlook with (1) a track record of product execution; (2) under-penetrated store network; (3) GP margin upside from a growing mix of Perfect Stranger.
We downgrade our forecasts reflecting a weaker sales environment into FY24, but view this as fully priced in with the stock trading on 8.0x our revised FY24E earnings (46% below historical average PER). As a result of our earnings changes and an update to our valuation methodology our 12m TP decreases -32% to A$5.05; with this offering 60% upside, we remain Buy rated.
All in all, the broker appears to believe that now could be a good time to add this ASX share to your portfolio.
