I think you all now this retailer H&M - It is one of the closest competitor to Inditex (Zara) It runs a similar clothing business model (though Inditex has the competitive advantange in their logistics and supply chain management)
Anyways, we are not studying the quality of the business rather highlighting a valuation pattern that I've seen in a lot of indexes, stock exchange in the OECD countries
- I was wondering why this stock rallied when my perception was that the retailers like this weren't the high growth high-street shops that I used to know
- Going through the fundamentals, its 2022 sales compared to 2019 is still -5% (though YoY is a growth of 12%)
- Gross Margins decrease from the close to 60% to 51%
- Net Margins came down from the 10% to 2% But yet, the share price PE ratio is now back to 15 (10Yrs average is 18)
- Dividend yield is 4.5%
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Considering that US T Gov bills yields better and bear "no risk" ... this is a valuation that I don't understand
Why would you buy a company that is getting worst and worst in terms of margins and profitability ratios?
Well, the only thing that explains this is that probably by diversification rules institutions have to buy some stocks in Sweden, or the local pension funds have to invest a % of the cash in the Swedish stock market and there are no much asset class or stocks where you can put your cash in
Too many cash, chasing too few assets
Just thinking loud... as it seems like investment "managers" are just playing the game they have to keep earning their salaries. They know if they lose money investing in blue chips or big tech won't make them look bad, rather, it is the market that did wrong, not them. But they can neither sit for long period on a pile of cash... bcuz then how do they justify their salaries and bonuses?
Submitted May 08, 2023 at 07:30AM by JournalistFew2794 https://ift.tt/8UhZ1BL
