1 Beaten-Down Hong Kong Stock for Bargain Hunters

Given all the market volatility, and recent losses, certain stocks have taken a hammering due to the Covid-19 outbreak.

I had previously outlined the five fastest-growing e-commerce categories and which stocks might benefit.

Carrying on with that, I thought I would share the five fastest-declining e-commerce categories and one stock which bargain hunters in Hong Kong might want to consider.

Lost luggage

Samsonite International S.A. (SEHK: 1910), the world’s largest luggage manufacturer, has seen its share price drop off a cliff since the beginning of the year.

It’s no surprise given the accompanying plunge in air travel. As you can see below from Stackline’s fastest-declining e-commerce categories, “luggage & suitcases” as a category topped its list – down 77% year-on-year.

Source: Stackline

Given this, Samsonite’s share price dropped from HK$18.32 on 2 January and reached a closing low of HK$5.20 on Monday 23 March.

That’s a loss of over 70% in under three months. Since then, Samsonite’s share price has rebounded 34% and trades at HK$6.96 apiece (at the time of writing).

However, that’s still some way off its 52-week high of HK$24.

Cheap valuation

The company is a well-respected leader in the luggage space. What’s more, its portfolio of brands is well-diversified across varying price points (such as its bolt-on acquisition of Tumi a few years ago).

If investors focus on the valuation, they’ll see that the company is trading at a multi-year low. Its price-to-earnings (PE) ratio of 9.1x is, of course, baking in some of the bad news that will come out this year.

However, it may be overly pessimistic given we are starting to see some relaxation of lockdowns in certain countries globally.

Diversification

Samsonite is also diversified globally, in terms of revenue, mainly between North America, Asia and Europe.

If, as looks likely, Asian countries can resume travel earlier than other countries worldwide, there could be a pickup in Samsonite’s revenue in the region.

As management outlined in its full-year 2019 earnings presentation (see below), previous disruptions to global travel have always been followed by a strong rebound.

Source: Samsonite 2019 earnings presentation

Foolish takeaway

For longer-term investors who believe strongly in the global travel theme then Samsonite looks like one beaten-down stock that could ride out the Covid-19 storm.

One thing to note for investors, though, is its debt outweigh its cash on hand. As at the end of December 2019, it had a net debt position of US$1.3 billion.

However, the company has made significant progress over the past few years in deleveraging its balance sheet. It also has significant credit lines available to it, with a US$647 million revolver available to it.

Investors who can look out over the next three to five years could be handsomely-rewarded by investing in Samsonite shares.

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