I believe there are always opportunities to be found in the S&P/ASX 200 Index (ASX: XJO), if we look in the right places. I'm going to cover one particular ASX 200 stock that I'm very excited about. That business is Lovisa Holdings Ltd (ASX: LOV), which I think looks better value after dropping 8% in 2023 to date. It's also down 16% from April 2023.
Lovisa says its brand was created "out of a need for on-trend fashion jewellery at ready-to-wear prices" and that it's a brand that "caters to everyone".
Strong global growth
It's a relatively simple business – sell affordable jewellery to shoppers. The business is able to generate pleasing profit margins on its sales because of how cheap the products are to produce.
In FY23 the company achieved a gross profit margin of 80%, so extra revenue growth is good news for the business. FY23 revenue rose 30% to $596.5 million and in the first 20 weeks of FY24, sales had increased another 17%.
The company is significantly growing its global store count to help with its financials – in FY23 it added another 172 net new stores to 801, which included 72 new locations in the US.
The business is steadily growing its store count in countries like the UK, France, Germany, Australia and South Africa.
It's particularly exciting to me that the ASX 200 stock has expanded into promising markets with a lot of growth potential because of the population size, such as Vietnam, China, Canada, Spain, Hong Kong, Italy and Mexico.
Lovisa's store count grew by 27% in FY23 and I think it can keep growing its store count by at least 15% to 20% per annum over the next five years, which could be good news for the revenue, net profit, dividend and Lovisa share price if things go well.
I invested in Lovisa shares roughly three months ago, thinking that it could double its store count in less than five years.
There are many more countries that Lovisa can expand into, which can unlock more potential growth. The huge Chinese market is particularly compelling if Lovisa can gain traction there.
Attractive valuation
Lovisa trades on a higher price/earnings (P/E) ratio than a lot of other ASX retail shares. However, its long-term growth potential makes it very good value in my eyes.
Forecasts are just a smart guess, but I think we can see the direction that Lovisa's earnings are going is very positive.
The current estimates on Commsec suggest the ASX 200 stock could grow its earnings per share (EPS) by 77% between FY23 and FY26 to $1.12. That would put the Lovisa share price at 20 times FY26's estimated earnings. I think Lovisa will be able to generate plenty of growth after FY26.
If we look to the long-term I think Lovisa has a very good chance of performing well.
Decent dividend payer
Lovisa usually pays an attractive level of passive income to investors each year, with the payout projected to keep rising in FY25 and FY26.
Profit growth can help fund larger dividends, which could reach 79 cents per share in FY25 and 91 cents per share in FY26, according to Commsec. At the current Lovisa share price, it could be a dividend yield of 4% (excluding franking credits) in FY26.
