"Buy Now for a Big Win?" Falling While Others Rise... Stocks Poised for a Brighter Turnaround [Weekend Money]

There is analysis that the share price turnaround of fashion brand companies is not a temporary boost but a signal of a shift to an upward trend.

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Shinyoung Securities suggested that now is the optimal time to pay attention to fashion brand companies whose market capitalization had been steadily declining.

According to Shinyoung Securities, from early last year through the 10th of this month, the relative returns of Mistoholdings, F&F, LF, Shinsegae International, Handsome, Youngone, Hansae, and Hwaseung Enterprise compared with the market were all negative, except for Youngone. However, over the past month, only Mistoholdings and Hansae recorded negative returns, while the other stocks rose by around 1% to 5%.

Fashion brand stocks are typically affected by department store business conditions. This is because there is an expectation that department stores must perform well for the fashion segment, which accounts for the largest share of department store sales, to deliver strong results.

However, the current boom in department stores is not directly linked to a boom in domestic consumption. It is instead the result of a complex mix of factors: normalization of distorted consumption patterns after COVID-19, the impact of major store renovations, base effects, and the inflow of foreign tourists driven by the weak won. This is why rising luxury sales at department stores do not automatically mean that all domestic fashion companies will benefit.

Although spending on fashion is on the rise, it still lags behind the overall growth rate of goods consumption. Domestic fashion consumption expenditure escaped negative growth, increasing by 2.9% in the third quarter of last year and 2.7% in the fourth quarter, but overall domestic goods consumption grew by 3.2% in each of those periods.

In this context, a noteworthy factor is that the value of assets held by fashion brand companies exceeds their market capitalization. When a company's operations are sluggish, it can sell owned assets such as real estate that have liquidation value. Conversely, when the business environment improves, the first thing to look at is also the asset base. If earnings improve while assets exceed market capitalization, the downside can be firmly supported, allowing a sustained share price recovery.

The market capitalization of LF, Handsome, and Shinsegae International has been on a downward path, standing at 641.8 billion won, 497.0 billion won, and 464.1 billion won, respectively, as of the 11th. As of the third quarter of last year, their assets held were 3.1234 trillion won for LF, 1.7439 trillion won for Handsome, and 1.4037 trillion won for Shinsegae International, all larger than their market capitalization.

Seo Jungyeon, a researcher at Shinyoung Securities, said, "LF announced its turnaround through last year's earnings revision disclosure, and a recovery in the fashion division in the fourth quarter of last year, combined with the stable performance of Koramco REITs & Trust, produced a positive surprise," adding, "Shinsegae International and Handsome also hold high-quality real estate assets, and while their fourth-quarter results last year were not strong enough to match their best years, they did show a turnaround after ending the weak performance that continued through the third quarter."