Originally Posted by
David B
Very interesting discussion and analysis, Snoopy, thanks for posting it. I wonder if your comment above might well be foretelling and forewarning of the future. At the moment HLG's margin is very high, but so too is its stock price. But how realistic is it to expect that HLG will be able to maintain its margin at that level in the coming months given the change in the economy, both here and in Australia where HLG does a fair chunk of its business? I don't see how it can do that. The exchange rate has come back sharply over recent weeks, which will put the price of the clothes it imports from China up, and consumer sentiment in the retail sector in both countries has turned flat. Both of these I would have thought would start to put the squeeze on HLG's margins, and ultimately, its share price. The WHS too is facing the same economic issues here in NZ in the retail space.
So I suppose one observation and question I have is just how much weight should one put on the historical record of a company's margins in the process of judging its future profitability and share price? I mean markets are forward looking, and I guess we invest in shares with the future in mind. We want the future share price to be more than what we paid. But in retail surely the current and upcoming economic conditions that will impact on the company are equally as important to deciding what retail company to invest in or to maintain an investment in, and in assessing whether its share price is over-or under priced? On that basis I now feel the HLG share price is overvalued, but I'm not so sure about WHS? So I'm wondering if the best time to buy retail stock is really when the share price is depressed, or whether it's better to buy when the economic outlook and consumer confidence is picking up?