The Adairs Ltd (ASX: ADH) share price has been a very strong performer on Thursday.
In afternoon trade, the homewares retailer's shares are up 12% to $1.91.
Image source: Getty Images
Why is the Adairs share price surging higher?
The Adairs share price is taking off today despite there being no news out of the company.
However, it is worth noting that a number of beaten down shares are rebounding strongly on Thursday after investor sentiment improved greatly.
This follows a particularly positive night of trade on Wall Street which saw the three major indices rise approximately 2%.
Can Adairs' shares keep rising?
Despite today's gain, the Adairs share price remains down over 50% since the start of the year.
One leading broker that appears to believe that this leaves it trading at very attractive levels is Goldman Sachs.
Earlier this month, the broker retained its buy rating and $3.05 price target on the company's shares. Based on the current Adairs share price, this implies potential upside of 60% for investors.
What did the broker say?
Goldman believes that Adairs' shares have been oversold and are trading on unnecessarily low multiples. Particularly given the company's loyal customer base. It said:
ADH has de-rated 27% vs. its long-term average P/E discount to the market vs. other discretionary retailers de-rating an average of c.10%. There has been a valuation disconnect between consensus revisions and the P/E multiple that ADH trades on, as we believe the market has priced in a more cautious view on near-term earnings vs. what is reflected in consensus estimates and company guidance, reflecting caution on a reversion in housing-related discretionary spend.
We do not believe the relative discount to other discretionary retailers implied for the core Adairs business is justified: it has a highly loyal customer base with >1mn Linen Lover members who account for >80% of sales. These customers are very engaged, according to management, and allow ADH to take a data-driven approach to marketing by providing a personalised experience for the 'Linen Lovers'.
