The recent devaluing of Dunelm Group PLC (LSE:DNLM) brought on by souring sentiments amidst the cost of living crisis presents investors with a buying opportunity, that’s according to analysts at Deutsche Bank.
In a note the German bank initiated its coverage of the retailer with a ‘buy’ recommendation with a 1313p target that suggests some 15% upside to the current market price of 1140p.
Analyst Talia Slater reckons Dunelm deserves a premium valuation not the discount that the London-listed stock is currently trades on.
“Since its IPO in 2006, Dunelm has delivered an impressive annualized equivalent return of 18%,” Slater said.
“The valuation derating since February offers a buying opportunity for a business with consistent delivery and compounding earnings growth.
“Dunelm is currently trading at a small discount to its 5-year pre-pandemic PE average of c.15.3x despite warranting a premium in our view given greater scale, category expansion and online investment.”
According to Deutsche more market share gains are available to Dunelm to drive sales growth even in the currently weak market.
Moreover, it noted expansion in the furniture segment as a significant tailwind for sales and it expects robust cash conversion in the business will allow shareholder returns to continue.
Deutsche forecasts 5.5% sales growth and 7% growth (CAGR) in earnings per share for the period from 2023 and 2027.