I firmly believe that Accent Group Ltd (ASX: AX1) is an oversold ASX stock and the market is significantly undervaluing it, which is why I invested in it myself.
Accent is not one of the biggest businesses on the ASX, but I reckon its valuation is one of the most appealing out there.
The company has its own businesses like The Athlete's Foot, Stylerunner, Nude Lucy, and Platypus. It also sells a number of global brands through its stores, including Skechers, Vans, Ugg, Herschel, Hoka, Dickies, Lacoste, and Merrell.
As the chart below shows, the Accent share price has dropped by more than 40% year to date (at the time of writing). But I think this has been significantly overdone for a few different reasons. It now looks ridiculously cheap to me.
Image source: Getty Images
Earnings to bounce back
Retail has faced a challenging period over the last few years, marked by inflation that has impacted household finances and reduced consumers' discretionary spending power.
But, I think there's now scope for the business to start delivering higher earnings following a reduction of inflation and multiple RBA cash rate cuts.
When a company is growing earnings, the market is typically more willing to pay a higher price-earnings (P/E) ratio than when it's flat or declining.
Rising earnings and a higher P/E ratio could deliver sizeable capital growth for this oversold ASX stock.
In a FY26 trading update, which was provided with the FY25 result, Accent said that total owned sales for the first seven weeks of FY26 were up 2% year over year, with early signs that its lifestyle businesses, including Platypus and Skechers, were "back to growth with sports and performance banners continuing to grow".
The forecast on Commsec suggests the oversold ASX stock's earnings per share (EPS) could climb to 10.7 cents in FY26 and then 14 cents in FY27. That suggests the business is trading at less than 10x FY27's estimated earnings.
Large dividends expected
While I'm optimistic the Accent share price can rise and deliver pleasing returns, the dividend payments could also be very rewarding.
The forecasts on Commsec suggest the business could pay an annual dividend of 7.8 cents per share in FY26, translating into a grossed-up dividend yield of around 8.5%, including franking credits at the time of writing.
After that, the payout is estimated to jump considerably to 10.3 cents per share, which would translate into a grossed-up dividend yield of 11.2%, including franking credits.
The passive income alone could deliver very pleasing returns.
Sports Direct
One of the reasons I'm excited about this oversold ASX stock is its partnership with Frasers Group to open Sports Direct stores in the local market, which presents the company with a significant growth opportunity.
Accent says that the Australian and New Zealand sports market is estimated at more than $5 billion. The company plans to open its first store and website in November 2025, with at least three physical stores by the end of FY26. It's aiming for 50 stores in the first six years, and there's an opportunity for 100 over time.
Sports Direct will be able to sell global brands with which Accent has a distribution agreement (such as Hoka and Skechers).
Sports Direct stores can sell products from global brand partners, including Nike, Adidas, New Balance, Puma, and Under Armour.
Accent will also be able to sell products from Frasers' brands, including Everlast, Lonsdale, Slazenger, Hot Tuna, Karrimor, and plenty more across its stores, not just Sports Direct.
Overall, I think this business has a very promising future, yet it's priced like an oversold ASX stock.
