Market decline

The unexplained mystery of Inditex’s stock market decline

No one could explain, in a credible and understandable way, the reasons for Inditex’s sharp stock market decline, precisely in a year when it is breaking records in terms of sales and profits. It’s hard to understand how a business, with the strength of the Galician fashion industry, could have been so affected. by the appreciation of the euro. It’s not so bad. And another explanation, that its stock price has increased considerably since early 2016, does not appear either. very consistent.
As a result, the group was worth “only” 99.9 billion euros and its main shareholder and founder, Amancio Ortega (with 59%) was now less rich as Jeff Bezos, the boss of Amazon. These ups and downs are normal, but the persistent declines in Inditex’s share price have caused some worry among analysts and brokers. It is obvious that investors got rid of their Inditex shares as if they had lost (a little) confidence in the potential of the company.

Over the past two weeks, for example, the decline in its share price has resulted in a succession of not very favorable recommendations on Inditex. Several brokerage firms have lowered their price target for the Galician fashion retailer. They explained that this was necessary because they had already predicted that the appreciation of the euro was going to have a negative impact on sales and profits (in euros) in the second quarter of the year.

Citi lowered its price target by 4% to 40 euros, while Credit Suisse did the same, from 29.7 euros to 25 euros. UBS, Jeffries, Société Générale, JP Morgan, HSBC, Macquarie and Berengberg were the next to cut the forecast.

Another argument from analysts is that it’s not the best time for the retail sector, and in particular the fashion segment. They therefore fear that Inditex will not be able to meet previous growth expectations in the coming quarters.

Despite the fact that this drop in the share price might make sense given that the loss is very similar to the appreciation of the euro (13%), it’s strange how fast the market has been to punish a company with such growth potential as Inditex. You can’t help but notice it.

That said, it should be noted that analysts keep their confidence in the society. Few of you recommend a sale. Only 8%, while 30% recommend a Hold and 62% a purchase.

In the first quarter, the company once again reported positive news, with revenue of 5.569 billion euros, up 14% from last year. This prompted analysts to say that Inditex “meets expectations in light of the strong performance of the year. Things are going so well that even in Spain, where the fashion market is still weak, sales have increased by 6.2% this year. And 20% in the last three years.

Sometimes what happens to Inditex is a much like what happens to American tech companies: Faced with strong growth, analysts sometimes get scared and become conservative. Ultimately, the performance of this company was worthy of a champion. In 2007, before the crisis, the turnover was 9.4 billion euros: last year, it reached 23.3 billion. And that growth has remained solid in recent years. Last year, sales grew 12%, less than 15.4% in 2015, but more than 9.2% in 2014.

Ddespite the fact that he sees America and Asia as markets where he can develop, it even has a huge opportunity to develop in Europe. While it has 1,763 stores in Spain, it only has 299 in France, 135 in Germany and 110 in the United Kingdom. This shows that its growth possibilities in Europe are still high.