The S&P/ASX 200 Index (ASX: XJO) share Lovisa Holdings Ltd (ASX: LOV) could be one of the best businesses, if not the best, to buy right now in the index.
Lovisa is a leading retailer of affordable jewellery, which is largely aimed at younger shoppers.
I love buying undervalued businesses and this one seems like one of the most undervalued right now because it has dropped more than 40% in the past six months and it's down roughly 25% in the year to date, as the chart below shows.
Something isn't a buy just because it's down. However, I think the ASX 200 share is being significantly undervalued by the market, given my view of how much profit could grow.
Image source: Getty Images
Rapid profit growth
There are few ASX businesses that are growing globally as well as Lovisa. It has at least one store in numerous markets.
In fact, comparing the FY26 half-year result (HY26) to the HY25 result shows it added at least one more store year over year in the following markets: Australia, New Zealand, China, Vietnam, South Africa, Botswana, Zambia, the UK, Ireland, Spain, France, Germany, Belgium, the Netherlands, Poland, Italy, Hungary, UAE, the USA, Canada, Mexico, and its Middle East and Africa franchise.
Overall, its total Lovisa store count grew 15.5% year-over-year to 1,089 locations. I think it can quickly reach 1,500 stores over the next few years.
This store growth assisted Lovisa's core revenue to grow 22.7% to $498.1 million and net profit increased 21.5% to $69.6 million.
Will it be impacted by the inflation?
The ASX 200 share has a global customer base, so anything can happen, but I think younger shoppers are less likely to be impacted by rising rates because they're less likely to have a mortgage.
Lovisa's FY23 result – which was in the thick of the higher inflationary period earlier this decade – saw (on a comparable 52-week basis) revenue growth of 33.1% and net profit growth of 20.1%.
Past profit growth is not a guarantee of future profit growth, but I think the ASX 200 share's ongoing store rollout will help sustain revenue and earnings growth during this period.
According to the projection on Commsec, the business is currently forecast to generate 88.3 cents of earnings per share (EPS) in FY26, putting it at under 25x FY26's estimated earnings.
With the company's expanding global network of stores, I think its scale benefits will continue to improve, giving it the ability to grow its gross profit margin (and other margins), even if costs are rising.
The ASX 200 share's growth option
The final positive I want to point out is that the business has recently opened up another growth avenue with the fact that it has opened several Jewells stores in the UK. Jewells says sells trend-led affordable jewellery for everyday use, with sterling silver, gold vermeil and gold-plated designs.
There are already a lot of jewellery businesses out there, but this gives Lovisa another way to grow revenue and earnings with products at a different price point.
If Lovisa can grow Jewells to a sufficient scale, it can start boosting earnings, and this would help diversify its profit base further (beyond the great geographic exposure it already has).
Over time, it could become a material contributor to the overall business.
