With around 5,700 stores in its various chains, where Zara is the largest, Inditex is one size larger than its arch-rival H&M, which after a certain slimming of the number of stores is down to just over 4,300.
But if there is one or two sizes that differ in the number of stores, it is more like size M versus size XL when it comes to the stock market, where Inditex has pulled ahead significantly in recent years. After following each other in the recovery from the pandemic, Inditex’s stock price has taken off, while H&M has been stagnant.
Looking back five years, H&M is still a loss-making business for its owners, regardless of dividends, while Inditex has risen by well over 60 percent.
According to Inditex’s half-year report for the fiscal year (February-January) released on Wednesday, there is nothing indicating that the Spanish company will lose momentum in the competition. Sales increased by 10 percent in comparable currencies, and the operating margin continued to rise to 19.6 percent during the period, slightly above analysts’ expectations.
The autumn and winter collection is said to have been well received by customers, and Inditex gives an early indication of the development as it reports a growth in local currencies of 11 percent during the period from August 1 to September 8.
Inditex’s optimism about future growth was evidenced after the last report when it announced a major expansion plan for its logistics centers in Europe, amounting to 1.8 billion euros. An investment that will further strengthen an already fast and more local process from design and production to finished garments in stores or online.
When it comes to full-year expectations, analysts expect the growth rate to slow down in the future, but given Inditex’s size, an annual revenue increase of around 8 percent is not bad. Especially if expectations for margin increases up to nearly 20 percent by 2026 are met.
High profitability levels combined with growing sales provide attractive earnings growth, and a P/E ratio of 22 for next year feels justified.
| 2023A | 2024E | 2025E | 2026E | |
| Net Sales EUR bn | 35.9 | 38.9 | 42.0 | 45.3 |
| Operating Margin % | 19.0 | 19.4 | 19.7 | 19.9 |
| Earnings per Share EUR | 1.7 | 1.9 | 2.1 | 2.3 |
| P/E Ratio | 25 | 22 | 20 | |
| Source: Factset |
H&M, on the other hand, will release its next report in about two weeks, on September 26, covering the company’s third quarter. H&M also has a fiscal year (December-November).
Last time around, at the end of June, H&M disappointed the market with an operating margin below expectations. This may not have crushed but certainly significantly lowered the probability that their goal of a 10 percent operating margin this year will become a reality.
CEO Daniel Ervér was also clear that the conditions “have become more challenging” due to external factors such as purchasing costs and currency during the second half of the year.
On the stock market, this disappointment led to a 13 percent drop in the share price on the day of the report, and that decline has not been recovered as the price is still lower today. In recent weeks, lowered target prices from analysts have also been received, especially from foreign analysis firms.
Some examples of the most pessimistic actors are Goldman Sachs, which lowered its target price to 150 SEK, and Jefferies to 155 SEK.
The good news ahead of the report is that the stock, with the current price around 157 SEK, is well into the pessimists’ half and is already playing, and even small positive surprises can have a good impact on the market.
Analysis:
In this battle of fashion giants, Inditex seems to have a clear advantage over H&M in terms of stock market performance. Inditex’s strong financial results, optimistic growth outlook, and strategic investments in logistics position the company for continued success. On the other hand, H&M’s recent struggles and disappointing performance raise concerns among investors and analysts.
For investors, Inditex may present a more attractive opportunity with its promising growth prospects and solid profitability. On the other hand, H&M’s challenges could lead to further downside risk for the stock. It’s essential for investors to carefully consider these factors and make informed decisions based on the latest financial data and market trends.
Title: Expert Investment Manager Reveals Top Financial Market Trends for 2021
As a leading investment manager in the financial industry, I have analyzed the latest market trends and identified key opportunities for investors in 2021. From the impact of global events on stock prices to emerging sectors with high growth potential, this comprehensive guide will help you navigate the ever-changing landscape of the financial markets.
In recent months, we have seen unprecedented volatility in the stock market due to the ongoing pandemic and political uncertainty. However, savvy investors have been able to capitalize on these fluctuations by strategically allocating their assets and staying informed about market developments.
One of the most promising trends for 2021 is the rise of sustainable investing, with ESG (Environmental, Social, and Governance) criteria becoming increasingly important for companies and investors alike. By aligning your portfolio with these values, you can not only generate strong returns but also make a positive impact on the world.
Another key trend to watch is the growth of technology stocks, as digital transformation accelerates across industries. Companies that are at the forefront of innovation, such as those in the artificial intelligence and cybersecurity sectors, are poised for significant growth in the coming year.
In addition to these trends, it is crucial for investors to stay diversified and regularly review their portfolios to ensure they are well-positioned for any market conditions. By staying informed and working with a trusted investment manager, you can make informed decisions that will help you achieve your financial goals in 2021 and beyond.
Analysis:
This content provides valuable insights into the top financial market trends for 2021, including the impact of global events, the rise of sustainable investing, and the growth of technology stocks. By following the advice of an expert investment manager and staying informed about market developments, investors can make informed decisions to maximize their returns and achieve their financial goals. It is essential for investors to stay diversified and regularly review their portfolios to navigate the ever-changing landscape of the financial markets successfully.