I just invested $2,000 into this ASX 200 share with sparkling potential

This could be a great long-term opportunity at the current price.

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The Lovisa Holdings Ltd (ASX: LOV) share price looks like a really good long-term opportunity in my opinion. That's why I just invested $2,000 into the S&P/ASX 200 Index (ASX: XJO) share.

Lovisa says that it's a 'fashion forward' jewellery brand. It has stores in a growing number of countries.

The overall share market return is made up of hundreds of different businesses going through different levels of volatility.

Some businesses have fallen significantly over the past year or two, which opens up the potential to buy these investments at a much cheaper price.

There are a few key reasons why I decided to invest in Lovisa shares which I'll outline below.

The ASX 200 share is much better value

Since April 2023, the Lovisa share price has fallen by 33%, as we can see on the chart below.

A fall in a share price doesn't automatically make a business a buy, but I like the look of the company at this lower valuation because of its long-term growth plans.

The forward price/earnings (P/E) ratio has fallen back to a compelling number.

On Commsec, the business is projected to generate earnings per share (EPS) of 77.2 cents in FY24 and 98.4 cents in FY25. At the current Lovisa share price, that would imply it's valued at 23 times FY24's estimated earnings and 18 times FY25's estimated earnings.

Strong profitability

In FY23, the business saw revenue increase by 30% to $596.5 million and the gross profit rose 31.8% to $476.7 million. The gross profit grew faster than revenue, which is pleasing, and the gross profit margin reached approximately 80% in FY23.

It achieved an earnings before interest and tax (EBIT) margin of 17.7% despite all of the investing of growth that it's doing. I believe the EBIT margin can improve in the coming years as the company becomes bigger.

With how cheap the ASX 200 share's products are to produce, it's easy for the business to expand quickly with little capital needed.

Store growth potential

Over the past five years, the Lovisa share price, dividend and store count have all at least doubled.

I think there is a lot of potential for the business to substantially grow its store count over the next three, five and ten years.

During FY23 it added 172 net stores to grow from 629 to 801, which was an increase of 27%.

In Australia, it added a net 14 stores to finish with 168 stores. There are many markets with much bigger populations but much smaller store counts than Australia.

At the end of FY23, it had 41 stores in Malaysia, eight stores in Hong Kong, one store in Taiwan, 44 stores in the UK, one store in Spain, seven stores in the Netherlands, 47 stores in Germany, 18 stores in Poland, seven stores in Italy, 190 stores in the US, seven stores in Canada and four stores in Mexico.

Just utilising the countries I mentioned, I think it's possible for Lovisa to easily double its store count in five or six years.

There's also potential for the business to grow into markets like mainland China, India and Japan.

Dividend

As a bonus, Lovisa has a solid dividend yield.

The current projection on Commsec suggests that it could pay an annual dividend per share of 80 cents in FY25. That would be a partially franked dividend yield of 4.5%, or 5.75% grossed-up at the current Lovisa share price.

I'm hoping to receive growing dividends as Lovisa grows its global footprint and aims to grow profit.

Motley Fool contributor Tristan Harrison has positions in Lovisa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Lovisa. The Motley Fool Australia has recommended Lovisa. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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