Shares in piercing and jewellery retail company SkinKandy Ltd (ASX: SK1) have not exactly set the world on fire since listing on the ASX in late May.
The shares briefly traded higher, hitting $2.51 at one stage, up from the offer price of $2.20, but have since fallen to be changing hands for $2.19.
The analyst team at Morgans see this as an opportunity, saying the retailer has a strong position in a growing market segment and a long runway of potential store openings.
Before diving deeper into what the broker's analyst team thinks of the shares, let's check in on what the company's Chair, Trent Peterson, said about its prospects in the prospectus.
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Bolstered by excellent management
Mr Peterson said the company is the leading specialist piercing retailer across Australia and New Zealand, and operates a "repeat-driven retail format" in which piercings are the core service rather than an ancillary one.
Mr Peterson added:
Founded by Mark Oliphant in Queensland in 2010, SkinKandy has grown from a single store into a network of 100 company-owned stores2 across Australia and New Zealand. Throughout this journey, the Company has invested significantly in its operating platform, including its people, systems and store design, to enable repeatable execution and agile expansion capabilities.
Mr Peterson said in 2023, the company brought in Dain Friis as Chief Executive Officer, with Mr Friis having worked in high-level executive roles, including as Chief Operating Officer of Lovisa Ltd (ASX: LOV).
In terms of the company's growth prospects, Mr Peterson said:
The Board believes SkinKandy operates in a large, attractive and growing market. The industry in ANZ remains highly fragmented, with over 1,000 independent salons, beauty operators and pharmacies offering piercing as an ancillary service, presenting a compelling opportunity for a scaled specialist operation with a consistent customer proposition and strong operational standards which are designed to allow SkinKandy to grow share profitably. There is opportunity for further market share gains and the Board expects a progressive consolidation in the market to occur over the long term.
This ASX retail stock looks cheap
The Morgans team said they saw several growth levers ahead for the company, including acquisitions, 15-20 store openings per year, and the potential for international expansion.
They are forecasting the company's earnings per share to grow at a compound 33% from FY25 to FY28.
They added:
We see this as a compelling opportunity to invest in a high-quality retailer with a strong store rollout opportunity. We initiate coverage with a buy recommendation and a $2.90 price target.
This would be a 32.4% gain if achieved. SkinKandy is valued at $245.7 million.
