Big gains could be found at the small end of town according to analysts at Bell Potter.
In fact, if the broker is on the money with its recommendation, investors could double their money with this small cap ASX stock.
Which small cap ASX stock?
The stock in question is online underwear retailer Step One Clothing Ltd (ASX: STP).
Since listing on the Australian share market at $1.53 per share back in 2021, it has been a disappointing ride for shareholders.
On Thursday, the small cap ASX stock closed the session at 65 cents. This represents a 55% decline from its listing price and an even greater decline from its all-time high of around $3.00.
Bell Potter believes that the tide could be turning now that interest rates are falling. And this is just in time for the current end of financial year sales period. It said:
Throughout 2H25, several key macroeconomic developments in STP's core markets have emerged as potential tailwinds for the end-of-financial-year (EOFY) sales period and into FY26. Notably, both the UK and Australia implemented two rounds of interest rate cuts, in February and again in May. The result has strengthened consumer confidence and stimulated retail spending, both of which we have observed materializing.
In the 2H to-date, we have seen the Australian consumer start to gain confidence and begin to spend more (+3% YoY clothing retail spend Jan-Apr), while the UK has recorded its tenth straight month of positive retail sales growth, along with encouraging online clothing sales +6% in April.
The broker also highlights that the small cap ASX stock's discounting has been in line with rival retailers and, importantly, the broker's expectations. It adds:
Across the industry, we have monitored competitor discounting, with STP in line with Bonds and Calvin Klein in terms of depth of the discounts, showing the continued competitive nature in the promotional period, living up to our expectations. Positively, the sales period has shown an increase in May web traffic for STP in the UK and Australia, with conversion now the key test.
Big return potential
According to the note, Bell Potter has reaffirmed its buy rating and $1.30 price target on the small cap ASX stock.
Based on its current share price of 65 cents, this implies potential upside of 100% for investors over the next 12 months.
And just to sweeten the deal further, Bell Potter is expecting some big dividend yields in the near term. It has pencilled in a 7 cents per share dividend in FY 2025 and then a 7.4 cents per share dividend in FY 2026. This equates to whopping yields of approximately 11% in both years.
Commenting on its buy recommendation, the broker concludes:
We remain confident in our view that 2H26 will be the turnaround point for STP, forecasting a return to double digit growth in the half (BPe +12%) and for FY26e (BPe +10%). In FY27e we expect operating leverage to take effect as top line growth accelerates and the fixed cost base remains stable, with EBITDA returning to meaningful growth (BPe +20%). We note there continues to be a liquidity discount on the stock, with low daily traded volume paired with no guidance.
