On Thursday, UBS upgraded shares of Universal Store Holdings (UNI:AU) from Neutral to Buy, while adjusting the price target to AUD6.00 from AUD6.25. The revision reflects a mixed outlook by the analyst, acknowledging both the challenges and potential of the youth apparel retailer.
The upgrade comes despite a downgrade in earnings expectations, attributed to a slower store rollout. UBS noted that Universal Store Holdings has a robust balance sheet projected for FY24, with net cash expected excluding leases. The company also boasts a resilient customer base, which could help navigate through inflationary pressures and a potential consumer spending slowdown.
The stock's valuation has become more appealing after a significant de-rating. Since April 11, 2024, when UBS last downgraded Universal Store to Neutral, its price-to-earnings (P/E) multiple has decreased by 19%, compared to a 6% decrease in the ASX Small Ordinaries Index. The company's share price also underperformed, showing a 15% drop versus a 4% decline in the ASX Small Ordinaries.
UBS's upgrade is underpinned by a more positive stance on the Australian consumer sector and the anticipation of strong medium-term earnings growth for Universal Store. The current one-year forward P/E ratio of 11 times represents a 14% discount to the company's peers, which is seen as an attractive risk/reward proposition for investors.
InvestingPro Insights
As Universal Store Holdings garners attention with its recent upgrade from UBS, investors have been closely monitoring the performance of AXSO, a comparable youth apparel retailer in the market. AXSO's recent metrics indicate a nuanced short-term performance but a more positive long-term outlook. Specifically, AXSO's one-year price total return as of mid-2024 stands at a healthy 8.35%, suggesting resilience in the face of market fluctuations.
Investors should note that AXSO's price, at the previous close, was 1980.29 USD, with an average daily volume over the past three months reaching a substantial 527.92 million. This liquidity is a critical factor for investors who prioritize ease of entry and exit from their positions.
For those seeking deeper insights, InvestingPro offers additional analysis and metrics. One of the InvestingPro Tips highlights the importance of considering both short-term and long-term performance trends when evaluating investment opportunities. In the case of AXSO, while the short-term returns have been negative, with a 1-week, 1-month, and 3-month price total return showing declines of -0.58%, -2.39%, and -3.58% respectively, the 6-month and year-to-date returns have been positive, at 1.52% and 1.31% respectively. Such a trend underscores the potential for AXSO to offer value to investors who are focused on longer-term horizons.
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