The ASX share Lovisa Holdings Ltd (ASX: LOV) has suffered a major sell-off in the last couple of weeks, dropping 17% since 15 October.
This lower price is more appealing, and I'd consider buying if it hit a share price of $25.
I already own shares in Lovisa — it's one of the larger individual company positions in my portfolio — so I'd want to see a very attractive valuation before buying more. If I didn't already own Lovisa shares, I'd consider buying the popular jewellery retailer sooner.
It's possible Lovisa investors may be worried about an upcoming trading update, perhaps at the AGM in a few weeks. However, I believe there are many positives about the long term to keep in mind, even if the share price does fall further in the short term.
Huge store rollout opportunity
The company's global store network appeals to me because it can open many more stores in various countries in the future. Australia's population is currently close to 27.5 million people, which supports 178 stores.
Lovisa operates in numerous countries, including Singapore, Malaysia, Hong Kong, Taiwan, China, Vietnam, South Africa, the UK, Spain, France, Germany, Austria, Poland, Italy, the USA, Canada and Mexico.
At the end of FY24, the ASX share had 900 stores. I think there is a lot of room for the business to double its store count over the next several years within its existing markets. It could also expand to other countries with large populations, such as India and Indonesia, in the coming years.
Compelling financials
Ongoing store growth is helping the business grow its revenue and deliver scale benefits.
FY24 saw revenue growth of 17.1%. Gross profit increased 18.7% to $565.8 million, net profit before tax increased 19% to $110.6 million and net profit after tax grew 20.9% to $82.4 million.
I like seeing rising profit margins because it means the company is able to grow profit even faster than revenue. Profit is usually what investors judge a business on.
I'll also point out that the gross profit margin has reached an impressive 81%, which I'd describe as very high. It highlights to me how low-cost it is for Lovisa to open a new store and stock it with products.
Rewarding shareholders
I don't know what size Lovisa will ultimately become, but I think it's a great sign that the business continues growing its payout to investors over time so that long-term shareholders can benefit from its profit growth.
By paying dividends, Lovisa is delivering pleasing cash returns and still achieving strong earnings growth.
In the FY24 result, the ASX share grew its final dividend by 19% to 37 cents per share.
If revenue, profit and dividend keep growing at a strong double-digit pace, I think this company will be capable of producing ongoing strong returns for investors, particularly from a lower starting valuation like $25.
