Accent Group Ltd (ASX: AX1) shares have risen 22% since 24 November 2023, which compares to a rise of 9.5% over the same time period for the S&P/ASX 200 Index (ASX: XJO).
After such a strong rise in the ASX retail share, could the shoe retailer still be a good investment?
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Cheap forward valuation
This year could be tricky for many retailers because of cost of living difficulties, which has led to the share prices of retailers falling.
However, I like looking at cyclical opportunities when they're at a weaker point in the cycle.
The Accent share price is still down close to 20% from its 52-week high in April 2023.
Profit may drop in FY24, but it could rebound nicely in FY25 and FY26. By FY26, it might be as profitable as ever and make earnings per share (EPS) of 16.6 cents. This would put the business at under 13x FY26's estimated earnings.
Investing should be a relatively long-term-focused activity. While we don't have to hold every single ASX share forever, I think it's a good idea that each investment should make sense on a multi-year timeline.
FY26 really isn't that far away — we're already more than halfway through FY24.
I'd call Accent shares a buy for its longer-term potential, particularly when we consider a number of positives about the company.
Positives about Accent shares
The company is continuing to grow the portfolio of global brands that it sells in Australia.
Some of the latest brands to sign up with Accent are Ugg and Herschel, opening up more potential sales. I don't know what brand might be next, but any more growth could help earnings.
Accent is steadily opening more stores, which increases its scale. The company said at its AGM that its store opening program was on track with 70 new stores expected to open in the first half of FY24.
Another exciting element of the business is its level of digital sales, which can be more profitable than store sales because they don't come with all of the stored-related costs. In FY23, around a fifth of its sales were digital.
I'll also point to its growing number of owned brand sales. Businesses like Nude Lucy and Glue Store are owned entirely by Accent, so any growth it achieves is entirely benefiting the ASX retail share for the long-term.
The forward dividend yield is also compelling. According to Commsec, it could pay a grossed-up dividend yield of 10.25% in FY26.
