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Why the Lovisa share price is surging higher today

James Mickleboro
Lovisa jewellery

The Lovisa Holdings Ltd (ASX: LOV) share price has been a strong performer on Wednesday.

In late afternoon trade the jewellery retailer’s shares are up a sizeable 7.5% to $11.90.

Why is the Lovisa share price charging higher?

The catalyst for today’s strong gain appears to be the release of a positive broker note out of Citi this morning.

According to the note, the broker has retained its buy rating and $14.10 price target on the company’s shares.

Even after today’s strong gain, this price target implies potential upside of more than 18% over the next 12 months.

What did Citi say?

Citi notes that one of Lovisa’s main rivals in the ANZ market has just entered administration.

On Tuesday handbags, jewellery and accessories chain Colette revealed that Deloitte Restructuring Services had been called in as its administrator.

If Colette goes out of business and closes its 140 stores, the broker believes Lovisa will benefit.

And while it acknowledges that discounting activities from Colette could weigh on Lovisa’s short term sales, beyond this it expects the company to grow its market share in the ANZ market.

This is similar to what baby products retailer Baby Bunting Group Ltd (ASX: BBN) experienced over the last 12 to 18 months following the closure of many of its competitors.

Outside this, Citi remains bullish on Lovisa’s international expansion and continues to see this as the biggest driver of growth over the medium term.

Should you invest?

I think Citi is spot on and I would be a buyer of its shares today.

I’m particularly positive on the company’s expansion in the massive U.S. market.

Its expansion has started very positively and, given the size of this market, it represents a major opportunity for Lovisa and could underpin strong earnings growth over the next decade.

The post Why the Lovisa share price is surging higher today appeared first on Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020