Although the market may be trading close to a record high, not all Australian stocks are faring so well.
One of those is Endeavour Group Ltd (ASX: EDV), which could be dirt cheap at current levels.
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Why could this Australian stock be a buy?
Endeavour is the owner of the Dan Murphy's and BWS, as well as the ALH Hotels business, which has over 350 licensed venues across the country.
Its shares recently hit a record low of $4.08, which is well short of its 2021 IPO listing price of $6.50 per share. It is fair to say that this makes the Australian stock one of the worst blue-chip IPOs in recently years.
While this is very disappointing for early investors, the team at Goldman Sachs believes the selling has been overdone and created a very attractive buying opportunity.
A recent note out of the investment bank reveals that its analysts have put a buy rating and $5.50 price target on the drinks giant's shares.
Based on its current share price of $4.20, this implies potential upside of 31% for investors over the next 12 months.
In addition, the broker is forecasting a fully franked dividend of 20 cents per share in FY 2025. This represents a 4.75% dividend yield and boosts the total potential 12-month return to almost 36%.
What is the broker saying?
Goldman highlights that there are two main concerns that have been weighing down this Australian stock.
One is that alcohol consumption is in a structural decline. It feels these concerns are overdone. Goldman said:
Market concern over alcohol consumption structural decline overdone: Per Euromonitor, Australia's per cap consumption of alcohol is already one of the highest in the world in both volume/value terms. That said, industry growth has been relatively stable, averaging 10-yr CAGR of ~2.6% from 2009-2019, and pushing higher into 5.8% 2019-2023 CAGR largely due to inflation, which is likely having an impact on volume in FY24. Whilst per cap consumption volume has been on a downtrend (-1.6% 09-19), population growth, positive mix/price have driven industry growth.
It also notes that the liquor category is challenged at present, which is impacting investor sentiment. However, the broker highlights that Endeavour is growing its market share in these challenging times, which bodes well for when the category recovers. It adds:
Market share gains will position the Company well for category recovery: Whilst the Liquor category is currently challenged, we agree with management's focus on market share gain while keeping reasonable level of profitability. Excluding One Endeavour costs, Our FY25e Retail EBIT margins of 6.6%, whilst below FY24 7.0% is still in line with FY19 margin of 6.6%.
All in all, Goldman appears to see this Australian stock as one to buy while it is so cheap. It concludes:
We reiterate Buy on our continued believe in a high quality retailer gaining share amid a category down-cycle with a resilient growth option in Hotels. Company is trading at FY25 P/E of 17x vs historical average of 22x and WOW 22x, COL 21x.
