It’s been a rough month for luxury fashion e-retailer Farfetch (NASDAQ:FTCH). Amid a broader tech sector meltdown, FTCH stock has collapsed by nearly 30% over the past month, and presently trades at its lowest levels since last November.

This dip is a golden buying opportunity for patient, long-term investors.

Why? Three big reasons.

  1. The big-picture fundamentals underlying Farfetch remain very healthy.
  2. Recent business momentum remains vigorous.
  3. Farfetch stock is now deeply undervalued relative to fair value.

So, let’s not overthink this one thanks to fear or panic. Remain calm, stay focused on the fundamentals and buy the dip.

Long-term, this is a winning company that will reward patient shareholders handsomely.

FTCH Stock: A Long-Term Winner

The long-term bull thesis on FTCH stock is very compelling, and it all boils down the idea that this is the Amazon (NASDAQ:AMZN) of luxury fashion in the making.

Consumers love designer handbags, glasses, and shoes. Demand for that stuff is huge and durable. That’s why the luxury fashion market is both one of the largest retail verticals in the world at $300 billion, and the fastest growing with a 7% average annual growth rate.

This market, however, is stuck in the stone age. Only about 12% of luxury fashion sales today happen online, versus 30%-plus penetration in other apparel verticals. This lag is not due to lack of demand. Consumers buy cars and homes online. They’ll certainly buy luxury goods online. Rather, this lag is due to the lack of a centralized platform to provide a hyper-convenient e-retail experience.

Farfetch is that emerging as that platform.

The company has, over the past several years, quietly turned into a globally dominant luxury fashion e-retail platform, where thousands of brands sell hundreds of thousands of goods to millions of consumers all across the globe. By my numbers, the company now controls about 10% of the luxury e-retail market globally, following four consecutive years of ~50% GMV growth (which is, by the way, very impressive).

Importantly, Farfetch has durable competitive advantages to sustain early leadership, including platform (the company has the best app in the game), product (thanks to all of its partnerships, Farfetch has the most luxury goods for sale on its platform), and distribution (the company is building out a global network of fulfillment centers to optimize delivery times).

Thus, over the next decade, the luxury fashion market will shift online, growing from 12% penetration to 30%-plus penetration, while Farfetch will sustain 10%-plus market share in this category.

That’s a recipe for sustained double-digit revenue growth, which creates a solid foundation for strong FTCH stock price performance.

Strong Business Momentum

Now, I’d understand recent weakness in FTCH stock if the company’s business were slowing down.

But it’s not. At all.

Consumer spending everywhere is rebounding, especially in China, where Farfetch is leveraging a big partnership with Alibaba (NYSE:BABA) to turn into an exceptionally dominant player in China’s burgeoning luxury fashion market. From January to February 2021, retail sales in China jumped 33.8% year-over-year.

Meanwhile, global search interest related to “Farfetch” has been rising by about 8% year-over-year so far in 2021, versus 9% growth in the fourth quarter of 2021, so consumer digital search interest in the platform is not losing momentum.

Web traffic to Farfetch.com is down from the holiday period, of course, but still up solidly year-over-year. App download volumes have also remained relatively steady and strong over the past few months.

Overall, the high-frequency data here implies that the Farfetch business is still firing on all cylinders — FTCH stock has just gone on sale.

Hugely Undervalued

Most folks analyzing Farfetch’s business believe that FTCH stock is dramatically undervalued today.

Eight analysts on Wall Street are covering the stock. The average price target among them? $73.50 — or about 50% higher than the FTCH stock price today. Even the lowest price target on Wall Street is $65, and that’s even 33% higher than the current price.

Those numbers line up with my modeling.

Assuming luxury fashion rises to ~30% e-retail penetration and Farfetch commands ~10% of that market at scale, I see Farfetch stock as being worth around $70, based on $5.50 in long-term earnings per share potential.

In other words, FTCH is dramatically undervalued, according to everyone who is running the numbers on the stock.

Bottom Line on FTCH Stock

The tech sector meltdown has created multiple golden buying opportunities. And FTCH stock is one such opportunity that ranks among my top “Everything E-Commerce” stocks to buy… but it’s far from my only pick.

Retail is being digitized at a pace that’s accelerating, as globalization and technological convenience converge to create a more tech-centric society where we do all of our shopping for all items online.

— Luke Lango

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Source: Investor Place