Analysis of HM 2018

Company: H&M

ISIN SE0000106270 | WKN 872318

Business: Fashion retail with H&M, & Other Stories, Cheap Monday, COS, Monki, Weekday and Arket. The currently have online offerings in 43 of their markets.

Active: They have over 4700 stores in 69 markets. They are pretty much half the size of Inditex which shows us how large they can become. The main markets are in Europe where they are well established but also in North America. They have few stores in South America, Asia, Middle East and Africa.

P/E: 13.8

For the previous analysis please see Analysis of HM 2017.

The P/E is very reasonable with 13.8 but the P/B is too high with 3.8 which gives it a no go from Graham. The earnings to sales are at 7% which should be higher but the ROE is excellent with 27% and so is the book to debt ratio with 1.3.

In the last five years they have seen a yearly revenue growth rate of almost 9.1% which is excellent and this leaves us with a motivated P/E between 19 to 24 which means that the market is undervaluing H&M at the moment.

They pay an excellent dividend (paid out in two portions per year) in the size of 7.2% which on the down side corresponds to pretty much 100% of their earnings. So they better increase the earnings or soon decrease their dividend payments.

Conclusion: Graham says no but I say yes. H&M is making money, the P/E, ROE and dividend is excellent but large risk for decreased dividend in the future. I will remain as a shareholder that have not yet allowed my self to go grumpy due to the short holding period even though I do regret stepping in too early in H&M.