The Accent Group Ltd (ASX: AX1) share price has soared more than 70% over the past six months. But, could the ASX All Ordinaries (ASX: XAO) share keep sprinting ahead of the market?
For context, the All Ords Index has only risen by 5% in the last six months, so the retail share has shown massive outperformance in a relatively short amount of time.
Six months ago, we were in the depths of another market decline as investors worried about high inflation and rising interest rates.
It's understandable there has been a bit of recovery. Investors don't usually stay negative forever – the market generally looks ahead to recovery, which can explain why share prices rise before the economy has improved.
But, I think there's more to Accent's rise than just investors being more optimistic about the retail sector. Accent is showing very promising signs for the longer term, which was demonstrated in its FY23 half-year result.
For readers who don't know, the ASX All Ords share sells a variety of shoe brands that it acts as distributor for, as well as ones it owns, including Sketchers, Vans, CAT, Kappa, and Hoka. It also owns The Athlete's Foot and Platypus Shoes retail brands.
Accent's strong result
In the first six months of FY23, the company reported that total sales increased 39% to $825 million, earnings before interest, tax, depreciation and amortisation (EBITDA) rose 70.9% to $170.2 million, earnings before interest and tax (EBIT) went up 201% to $91.2 million, and net profit after tax (NPAT) climbed 294% to $58.3 million.
For me, it was very encouraging to see that each profit line improved faster than the one before it. What I mean by that is, EBIT grew faster than EBITDA, and NPAT rose more quickly than EBIT. It's a good sign for the company's scalability.
Ultimately, NPAT is one of the main things that a business is judged by — and what funds dividends. It's pleasing that a 39% rise in total sales led to a large increase in profit, though it's unlikely that FY24 and beyond will show as much NPAT growth.
The result was very impressive from the ASX All Ords share, but I think that Accent has laid the foundations for future growth of sales and profitability.
Growth plans
In the first half of FY23, it added 53 new stores. It could take a year before the full benefit of those stores is seen in the financials when a full year of sales has been generated from each store.
The business is expecting to open another 20 new stores in the second half of FY23. This could help sales and earnings in FY24.
I think further store growth is likely in FY24 and beyond. Growth could be accelerated by adding new brands to its portfolio.
But the next 12 months or so could be tricky for retailers like Accent. The question is, will the Australian population continue to buy as many shoes as they have in recent times?
Is the Accent share price good value?
According to Commsec estimates, the All Ords ASX share is valued at 14x FY23's projected earnings.
I think this seems like a reasonable valuation. So, I'm not going to suggest it's going to rise another 70% in the next six months. I believe it was undervalued last year, but it doesn't seem cheap today. Certainly, I'd prefer to buy it at a much cheaper price, but I think it can outperform the market over the next five years.
