ASX consumer discretionary stocks have been largely underperforming in 2026.
Rising interest rates, inflation, and subdued consumer confidence have all weighed heavily on investor sentiment.
When economic headwinds like these hit at once, it can be difficult for discretionary shares to see growth.
However, the team at Morgans have identified one consumer discretionary stock that is bucking the trend.
The broker has a buy recommendation on The Koala Company Ltd (ASX: KOA).
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Company overview
The Koala Company engages in the retail furniture business. The firm offers sitting furniture, mattresses, bedroom furniture, living room furniture, kitchen and dining furniture, outdoor furniture, and related products.
The consumer discretionary stock was initially listed on the ASX in late March.
Its stock price has hovered around the IPO price of $3.80 and is exchanging hands today for roughly $3.75.
The company is forecasting FY26 revenue of $332 million and net profit of $12.3 million.
In its initial prospectus, Chair Michael Gordon said the company was well-placed for growth.
As a furniture company, Koala is exposed to the global furniture market, which benefits from tailwinds including the growth of e‑commerce, increased time spent at home due to the shift to remote work, a desire to maximise the utilisation of living spaces, a growing emphasis on convenience, premiumisation, and the demand for more sustainable products. The business has a significant opportunity before it to grow in Koala's established markets, scale its presence in newer markets and enter into additional markets over time to grow the business.
Morgans initiates coverage with a buy
In a note out of the team at Morgans, the broker has initiated coverage on this ASX consumer discretionary stock with a buy recommendation.
We initiate coverage on Koala Company with a BUY recommendation and $5.13 target price. We think there is a degree of conservatism embedded in both our forecasts and valuation, with the balance of risk skewed to the upside.
Koala offers an attractive growth profile, underpinned by strong sales growth, margin expansion and significant NPAT growth. The stock screens cheap on a multiple basis, trading on 18.5x FY27 PER versus the peer set average at 27.0x, despite offering one of the strongest growth profiles.
From today's share price of $3.75, the price target from Morgans indicates a potential upside of almost 37% for this consumer discretionary stock.
