HMB SS

Public companies mentioned herein: H&M (HMB SS).

Highlights

The presenter is short shares of H&M on the thesis that slowing growth and ongoing margin compression will eventually shift sentiment negative. The market continues to be largely enamored with the discount apparel retailer because the company has successfully grown square footage in the double digits for the past several years. However, on a like-for-like basis, growth has been slightly negative over the past several quarters, with the presenter noting that the company has only managed to grow in excess of 1.6% on a like-for-like basis in just one out of the last six years. Further, H&M has suffered from massive margin contraction in recent years, with EBITDA margins going from 22% to around 10 percent. While margins are likely to come in closer to 12% this year, longer term the presenter believes margins should only continue to come down given the highly competitive nature of the retail apparel market. In his estimation, the stock could trade to roughly the SEK 150 level over the next year, representing downside of around 45 percent.