It’s a retail fire sale! The retail sector might be in a slump, but that also means that there are bargain share prices to be snapped up.
“Many have completely written off domestic retailers and share prices are now approaching very attractive levels,” City Index Market Analyst, Peter Esho said.
Your Money Magazine brings you the top 5 attributes to look for in a retail stock before you say buy!
1. Adaptability: Go for companies that have multiple brands under their belt. For example, by having five different brands, there can be five different demographics who buy from the company. “Diversify your customer exposure, in terms of branding and identity”, Peter Esho said.
2. Retailers that embrace technology: retailers that are active online are pulling their customers back though online channels (customers they may have otherwise lost due to online shopping). Look for those that are building up an online presence, because they’re using technology to bring shopper’s back.
3. Control supply: Look for stocks in retailers that have control over their supply base. If they’re directly sourcing their own products, it’s safer because they don’t depend on others for their stock.
4. Real estate ownership: Retailers who own their premises outright are generally safer share options because they are not at the mercy of shopping centre lease agreements and fluctuating rental prices.
5. Rate of Equity: Remember that any investment, retail or otherwise, depends on a firm's efficiency at generating profits from every unit of shareholders' equity, known as return on equity (ROE). In other words, hunt down company shares with those who use investment funds to generate earnings growth. ROEs between 15% and 20% are desirable.