Is it too late to consider buying Lovisa Holdings Limited (ASX:LOV)?

Lovisa Holdings Limited (ASX:LOV) may not be a large cap share, but it has seen its share price rise by over 20% in the last two months on the ASX. With many analysts covering the stock, we can expect that any price-sensitive announcements have already been factored into the share price. However, could the stock still be trading at a relatively cheap price? Today, I will analyse the latest data on Lovisa Holdings’ outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Lovisa Holdings

What is the value of Lovisa Holdings?

Lovisa Holdings is currently expensive based on my price multiple model, where I look at the company’s price-to-earnings ratio relative to the industry average. In this case, I used the price-to-earnings (PE) ratio since there is not enough information to reliably forecast the stock’s cash flows. I find that Lovisa Holdings’ ratio of 40.63x is higher than its peer average of 9.5x, suggesting that the stock is trading at a premium relative to the Specialty Retail industry. If you like the stock, you might want to keep an eye out for a potential decline in the price in the future. Since Lovisa Holdings’ share price is quite volatile, this could mean that it can go lower (or higher) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator of how much the stock moves relative to the rest of the market.

Can we expect growth from Lovisa Holdings?

Future outlook is an important aspect when considering buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a solid outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations. With earnings expected to grow by 71% over the next two years, the future looks bright for Lovisa Holdings. It seems that higher cash flows are on the cards for the stock, which should translate into a higher stock valuation.

What this means for you

Are you a shareholder? LOV’s optimistic growth seems to have been factored into the current share price, with the stock trading above industry price multiples. However, this raises another question: is now a good time to sell? If you think LOV should be trading below its current price, selling high and buying back when its price returns to the industry’s price-to-earnings ratio can be profitable. But before you make that decision, check whether its fundamentals have changed.

Are you a potential investor? If you’ve been watching LOV for a while, now might not be the best time to get in on the stock. The price has outpaced its industry peers, meaning there’s likely no further upside in the event of a pricing mistake. However, the positive outlook is encouraging for LOV, meaning it’s worth looking more deeply at other factors in order to take advantage of the next price drop.

While earnings quality is important, it’s equally important to consider the risks Lovisa Holdings faces at the moment. Every business has risks, and we’ve identified some 1 warning sign for Lovisa Holdings you should know about.

If you are no longer interested in Lovisa Holdings, you can use our free platform to see our list of over 50 other stocks with high growth potential.

Do you have any comments on this article? Are you concerned about its content? Get in touch with us directly. You can also send an email to editorial-team (at) simplywallst.com.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to constitute financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. Our goal is to provide you with focused, long-term analysis based on fundamental data. Please note that our analysis may not factor in the latest price-sensitive company announcements or qualitative information. Simply Wall St has no position in any of the stocks mentioned.

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