This ASX 200 superstar is down 13% in 2 days. Time to pounce?

ASX 200 investors have sent this market darling spiralling lower. Is it a bargain or a falling knife?

| More on:
Puk Pukster the Pug is displaying her new piece of jewellery with a sad face.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

June has certainly not started well for S&P/ASX 200 Index (ASX: XJO) darling Lovisa Holdings Ltd (ASX: LOV).

At market close last Friday, 31 May, shares in the ASX 200 fashion jewellery retailer closed trading for $33.91 apiece.

That put the Lovisa share price up more than 64% in only 12 months. Atop that supersized share price gain, Lovisa also paid out 81 cents per share in partly franked dividends over the year. This sees the stock currently trading on a trailing yield of 2.8%.

But things took a turn for the worse yesterday, with the Lovisa share price crashing 10.4% to close at $30.40.

And the selling continues today, albeit at a more modest pace.

In afternoon trade on Tuesday, the Lovisa share price is down 3.1% at $29.45, putting the stock down 13.2% since Friday's closing bell.

I told you June was off to a rough start!

However, longer-term shareholders should still be sitting on some outsized gains.

Despite the fire sale, shares in the ASX 200 retailer remain up 42.7% over 12 months.

Why is the Lovisa share price getting smashed?

ASX 200 investors were overheating their sell buttons yesterday after Lovisa announced that CEO Victor Herrero will be stepping down on 31 May next year.

Herrero will be replaced by John Cheston, currently the CEO of Smiggle.

"John is a highly successful global retailer and will join Lovisa at a very exciting time as we continue our global growth," Lovisa chairman Brett Blundy said.

Clearly, though, investors have their doubts.

"The outgoing CEO has been instrumental in Lovisa's global expansion," Motley Fool analyst James Mickleboro noted.

Mickleboro added:

While a lot of the hard work has certainly been done since his [Herrero's] arrival in 2021, there's still a lot more to come. The market may be concerned that his exit now puts at risk the successful execution of this expansion.

Which brings us back to our headline question.

Time to pounce on this ASX 200 superstar?

Following Lovisa's announcement yesterday, a number of brokers downgraded their outlook for the ASX 200 jewellery retailer.

Among them:

  • Barrenjoey cut Lovisa to a neutral rating with a $29.80 price target
  • Citi cut Lovisa to a neutral rating with a $31.65 price target
  • Morgan Stanley cut Lovisa to an equal-weight rating with a $30.25 price target
  • Canaccord cut Lovisa to a hold rating with a $29.00 price target

Now, what you might have noticed is that while the ASX 200 company was broadly downgraded following the past two days of selling, the price targets from three of these brokers are already higher than the current $29.45 a share.

Indeed, Citi is forecasting a potential upside of 7.5% from current levels.

Atop these brokers, Wilsons Advisory analyst Tom Camilleri also expressed concern over Lovisa's ongoing growth, particularly in China where Herrero has experience with store roll-outs.

In its half-year results for the six months to 31 December, Lovisa reported opening 74 outlets during the half year, taking the total to 854. That included the company's first store in Guangzhou, China, and Ho Chi Minh City, Vietnam.

As for the outlook for the ASX 200 retail stock going forward, Camilleri added:

On a more fundamental level, Lovisa still has one of the most profitable and scalable physical retail formats globally, which should continue to be rewarded with a premium multiple.

And keeping in mind that Lovisa's last interim dividend of 50 cents per share marked an all-time high payout, I'd say the two-day 13% sell-down could present a great opportunity to get in at an attractive long-term price.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. 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.

More on Share Fallers

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Bapcor, Chalice Mining, Integral Diagnostics, and Winsome Resources shares are dropping

These shares are having a tough session on Monday. But why?

Read more »

a business man in a suit holds his hand over his eyes as he bows his head in a defeated post suggesting regret and remorse.
Share Fallers

Why Core Lithium, Deterra Royalties, Northern Star, and Opthea shares are dropping

These shares are ending the week deep in the red. But why?

Read more »

A young male investor wearing a white business shirt screams in frustration with his hands grasping his hair after ASX 200 shares fell rapidly today and appear to be heading into a stock market crash
Share Fallers

Why ASX, Brazilian Rare Earths, Liontown, and Sigma shares are sinking today

These shares are under pressure on Thursday. But why?

Read more »

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.
Share Fallers

Why did this ASX AI stock just crash 21%?

Investors just sent this ASX AI stock tumbling by more than 21%. But why?

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why Arafura Rare Earths, Bigtincan, Evolution Mining, and Galileo Mining shares are dropping

These shares are having a tough time on hump day.

Read more »

A woman sits with her hands covering her eyes while lifting her spectacles sitting at a computer on a desk in an office setting.
Share Fallers

Why Chalice Mining, Northern Star, Peninsula Energy, and Service Stream shares are sinking

These shares are starting the week deep in the red. But why?

Read more »

Investor looking at falling ASX share price on computer screen
Share Fallers

Can the Appen share price recover amid AI mania?

Once an ASX tech darling, Appen has fallen on hard times in recent years. Can it capitalise on the AI…

Read more »

A woman with a sad face looks to be receiving bad news on her phone as she holds it in her hands and looks down at it.
Share Fallers

Why Beach Energy, Life360, Viva Leisure, and Wildcat shares are dropping today

These shares are ending the week in the red. But why?

Read more »