Bjoern Wylezich/iStock Editorial via Getty Images Swedish affordable fashion retailer Hennes & Mauritz, or 'H&M' ( OTCPK:HNNMY ), has had a rough go of it over the last decade. The good news, though, is that light has emerged at the end of the tunnel, and since I last called for caution on the stock (see Hennes & Mauritz: Turbulence Ahead ), H&M has proved me, and most other analysts wrong by cutting its way to earnings growth. Assuming this progress continues through this and next year, H&M now has a very real shot at hitting its 10% operating margin target and, more importantly, nearly doubling its 2023 earnings per share by 2025/2026.
JP Research, H&M Cutting its way to earnings growth will probably be enough for the stock to grind higher for now, but once the cost-out runway ends, H&M's next chapter will admittedly be a trickier one. Efforts to lean out the company have naturally come with a top-line trade-off, so it remains to be seen if management can leverage its reinvestments (the most notable being in omnichannel) into volume and pricing gains. The good news is that success isn't fully priced in here, as the current high teens forward P/E is more than matched by a rapid pace of earnings growth and 3-4% dividend yield.
The ample cash balance also means a buyback catalyst could well be on the cards at Q2 results later this month. Net-net, I like H&M a lot better at this juncture. Data by YCharts Margin Expansion Shines Through in Q1 Trading H&M kicked off 2024 with a ~.
