The ASX growth stock that could 'become exceptional' in the coming years

The Elvest team is riding this consumer discretionary stock through the current anxiety in anticipation of great growth over the long term.

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The unfortunate fact about many professional investors is that their actions are incompatible with punters who want to invest for the long term.

That's because fund managers need to report their performance on yearly, quarterly and monthly basis. So they can't afford to have negative periods, otherwise they could lose clients or potential customers.

This is fundamentally opposite to long-term investing, as that philosophy requires investors to ignore short-term fluctuations.

So it's always refreshing to see an analyst outline their bullishness for a particular growth stock based on its prospects for years to come.

The team at Elvest Fund cited one such example this week:

'Double or triple' store count in coming years

Budget jewellery retailer Lovisa Holdings Ltd (ASX: LOV) has been one of the darlings of the ASX since the COVID-19 crash three years ago.

However, the share price has had a tough time of late.

The stock has dropped almost 32% since late April, as consumer discretionary businesses provoked anxiety in investors.

Numbers from reporting season were positive, according to Elvest analysts.

"Lovisa's FY23 result was solid with 30%+ growth in revenue and pre-tax earnings," they said in a memo to clients.

"FY24 started with a decline in comparable store sales, however this mainly reflects the cycling of price increases which drove an outsized 20% increase in comparable store sales in the prior year."

The analysts reminded investors that the fruits could come years down the track when buying Lovisa shares. 

"The main game remains the long term global store rollout, which could double or triple LOV's FY23 year-end network of 801 stores over the coming decade. 

"The stock trades on a reasonable free cash flow yield in the near term, but we think that will become exceptional as the rollout matures."

The Elvest team admitted markets were skittish at the moment, but urged investors to hold their nerve.

"With yields on government bonds continuing their ascent, we may be entering a period of elevated volatility," the memo read.

"The silver lining is that we are starting to see solid longer term value increasingly on offer."

According to CMC Markets, six out of 11 analysts currently rate Lovisa shares as a buy.

The Lovisa share price is up more than 90% from five years ago.

Motley Fool contributor Tony Yoo has positions in Lovisa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Lovisa. The Motley Fool Australia has recommended Lovisa. 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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