Broker says Lovisa shares are a buy following this week's sell-off

This week's sell-off could have created a great buying opportunity for investors.

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I think it is fair to say that Lovisa Holdings Ltd (ASX: LOV) shares have taken a real beating this week.

The fashion jewellery retailer's shares are down over 11% since the end of last week.

This compares to a 0.6% gain by the ASX 200 index over the two trading days.

Why have Lovisa shares been sold off?

Investors have been hitting the sell button this week after Lovisa announced that its CEO, Victor Herrero, will be stepping down from the role next year.

The highly respected CEO will remain with the company until 31 May 2025. After which, he will be replaced by John Cheston, who is currently the CEO of Smiggle, which is owned by Premier Investments Limited (ASX: PMV). Prior to Smiggle, Cheston was CEO at Marks & Spencer.

Given Victor Herrero's experience in overseeing global expansions for retail brands, investors appear concerned that his exit could derail Lovisa's own expansion.

Though, it is worth noting that his replacement, John Cheston, has overseen the expansion of Smiggle around the globe. So, he certainly has the experience required to take over the reins at Lovisa.

Broker says buy the dip

Bell Potter has responded to the news and remains positive despite the CEO change. In fact, the broker believes that Cheston will be a good fit for Lovisa. Its analysts commented:

While we see leadership transition risk at LOV with the executive departure, we believe today's CEO appointment aligns well to drive the next leg of growth and lift the penetration on a global business built by Victor, in addition to the appropriately priced LTIs [long term incentives].

We anticipate a smooth transition over the next 12 months and expect John's background on Smiggle's growth strategy into ANZ/UK/Ireland/Asia/Middle East in both retail & wholesale channels to assist continued execution in LOV's ~40 markets globally.

In light of the above, this morning the broker has retained its buy rating and $36.00 price target on Lovisa's shares.

Based on its current share price of $29.74, this implies potential upside of 21% for investors over the next 12 months. The broker concludes:

Our Price Target remains unchanged at $36.00/share. We continue to view distinctive growth traits, strong gross margin outlook, store opportunity, ability to execute as a strong player in the fashion jewellery market and lower price point driven competitive advantage as able to justify LOV's premium to the peer group (~30x FY25e P/E, BPe). Retain BUY.

Motley Fool contributor James Mickleboro 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 and Premier Investments. 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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