Why this top fund manager has been snapping up Lovisa shares

This leading fund manager believes the sell-off in Lovisa shares was an overreaction.

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If you were watching the boards on Monday, you'll have noticed the big hit Lovisa Holdings Ltd (ASX: LOV) shares took on the day.

Having gained for the previous three trading days, shares in the S&P/ASX 200 Index (ASX: XJO) jewellery retailer closed last Friday at $33.91, compared to $20.67 a share 12 months earlier.

This saw Lovisa shares up a benchmark smashing 64% in a year. And that's not including the 81 cents a share in partly franked dividends the ASX 200 retailer paid out over the year.

If we add that handy passive income back in, the stock had gained 68% as of Friday's close.

But things took a decided turn for the worse on Monday, with the stock dropping a precipitous 10.4%. The selling continued on Tuesday, with shares closing down another 2.2% at $29.74 apiece.

What's been putting the ASX 200 jewellery retailer under pressure?

Lovisa shares took a dive on Monday after the company announced that CEO Victor Herrero will be exiting his position on 31 May 2025.

Investors were hitting the sell button as many see Herrero as the driving force behind Lovisa's strong growth.

Lovisa reported opening 74 new outlets over the second half of calendar year 2023 bringing the total number to 854. Notably the company opened its first store in China, where Herrero is said to have experience with store rollouts.

Investors were hitting the sell button despite management flagging a smooth leadership transition, with John Cheston, currently the CEO of Smiggle, taking over the helm.

"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.

Why this fund manager has been buying Lovisa shares

It turns out Tuesday arvo would have been an opportune time to buy the dip on Lovisa shares.

The ASX 200 retail stock closed up 2.7% yesterday and is up 3.2% in early morning trade on Thursday, with shares swapping hands for $31.51 apiece.

Indeed, this is just what Tribeca fund manager Jun Bei Liu has been doing. Liu cited the company's "very strong management team on every level" for the rationale to be buying Lovisa shares during the sell-down.

According to Liu (quoted by The Australian Financial Review):

The market has been impressed with the company's growth and have naturally attributed much of that achievement to the current CEO.

His recent departure has been treated as though the growth of the company is about to slow down … We feel this has been a typical over-reaction by the market.

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.

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