Why I just invested $3,000 in this ASX 300 share that's down 30%

I'm excited by this stock for the long term.

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The latest investment I've made for my portfolio is the S&P/ASX 300 Index (ASX: XKO) share Accent Group Ltd (ASX: AX1).

It's something I've covered a number of times over the past year and a half, but I finally decided to push the buy button for my own portfolio.

The company is a large shoe retailer. It owns a few different brands including The Athlete's Foot, Nude Lucy, Glue Store and Stylerunner. The business also distributes for a number of brands including Timberland, Skechers, Dr Martens, Vans, Hoka, Ugg, Kappa and more.

There are three main reasons why I decided to invest.

Lower Accent share price

I like to look at businesses in cyclical sectors when they're going through a weaker period. I don't think consumer demand for shoes is going to be consistent every year, sometimes it'll be stronger and sometimes it will drop.

When I invested a week ago at $1.73, the Accent share price had fallen just over 30% in total from April 2023, as we can see on the chart below.

Some of that fall came after the business reported a trading update for the first 19 weeks of FY24. It said total owned sales in the year to date were up 2.1% and like for like sales were down 2%. Wholesale sales are "more challenging" reflecting "softer demand from other retailers".

The FY24 gross profit margin was "broadly in line" compared to FY23. However, the cost of doing business to sales ratio to the end of week 19 was "higher" because of inflationary pressures on costs and weaker like for like sales.

Those are the sorts of sales numbers that show me we're in/entering a weaker period.

I don't have a crystal ball to know how long weaker trading conditions will last for the ASX 300 share – it could be a year, three years or something else. But, the lower Accent share price gave me an entry point for a longer-term investment.

According to the projections on Commsec, the Accent share price is valued at 15 times FY24's estimated earnings and 12 times FY25's estimated earnings.

Growing store count and strong digital sales

While like-for-like sales are struggling, I think the company's growing store count is a good strategy and is helping total sales.

There's a potential argument to say the company is cannibalising its own sales by opening new stores – it's expecting to open another 70 stores in the FY24 first half. However, keep in mind the extremely fast population growth that's happening right now.

In the latest quarterly update from the Australian Bureau of Statistics (ABS), in the three months to March 2023, the Australian population grew by 181,600 and increased by 560,000 over the 12 months to March 2023. That's a lot of extra people that need more shoes.

Digital sales remain a strong part of the picture. In FY23, almost a fifth of retail sales were digital and they had grown 211% compared to FY19. Digital sales were up 24% compared to FY21. There was digital sales growth of 19.8% from the FY22 second half compared to the FY23 second half.

I think this shows that a shift to online shopping over time may not hurt Accent. In fact the ASX 300 share may benefit because of the strong profit margins involved.    

Good ASX 300 dividend share

The business has demonstrated good profitability in the last several years and its board has shown a willingness to pay attractive dividends.

While it could take a while for the Accent share price to regain some investor confidence, it could continue to pay good dividends in yield terms.

The Accent dividend could be significantly cut in FY24, but even so, at the current Accent share price, it's projected to pay a grossed-up dividend yield of 8.4% in FY24 and 10.1% in FY25, according to Commsec.

Motley Fool contributor Tristan Harrison has positions in Accent Group. 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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