Is It Time To Consider Buying Accent Group Limited (ASX:AX1)? Technical and Valuation Insights Suggest a Strategic Opportunity

Investors searching for undervalued opportunities in the retail sector may want to take a closer look at Accent Group Limited (ASX:AX1). Recent technical indicators, a reasonable valuation relative to peers, and a robust dividend yield are creating a compelling case for entry. Let's dissect the data to determine if now is the right time to consider buying.

Technical Analysis: A Confluence of Positive Signals

First, let's examine the technical picture. Over the past 10 days (as of May 28, 2025), AX1 has fluctuated between $1.81 and $1.91, with a 5.1% decline in price. However, this dip has set up an attractive entry point near key support levels.

Key technical highlights include:
- Volume Surge: Trading volume spiked to 2 million shares on May 28—625,000 shares above average—paired with a price rise from $1.85 to $1.86. This volume surge typically signals buying interest and a potential reversal.
- Moving Average Crossover: While the short-term MA (likely 10-day) is above the long-term MA (30-day or 50-day), creating a general buy signal, the stock remains near critical support at $1.81.

Backtest the performance of ASX:AX1 when 'Moving Average Crossover (short-term MA above long-term MA)' and 'buy and hold for 20 trading days', from 2020 to 2025.

Historical backtests from 2020 to 2025 reveal that such signals led to an average return of -1.86% over a 20-day hold period, with a maximum drawdown of -36.65%. This underscores the need for caution and rigorous risk management, as the strategy underperformed historically.

• Resistance Levels: The immediate resistance is $1.89, where the short-term MA currently sits. A breakout above this level could unlock upward momentum toward $1.95.

Valuation: A Discounted Price with Growth Potential

From a valuation perspective, AX1 is trading at a P/E ratio of 16.32, slightly above its Apparel Retail industry average of 16.15 but well within a competitive range. This suggests the market is pricing in moderate growth expectations, even as earnings have faced recent headwinds.

Key valuation metrics:
- Dividend Yield: A generous 7.03% yield, fully franked, makes AX1 appealing for income-focused investors.
- Shiller PE Ratio: At 18.60, this long-term metric smooths out cyclical earnings volatility and aligns closely with the industry's average.
- Market Capitalization: $1.12 billion, a size that allows flexibility for strategic moves (e.g., the April 2025 partnership with Frasers Group) without overextending resources.

The forward P/E of 13.15 further indicates optimism about future earnings, as the company aims to capitalize on its 800+ store network and exclusive brand partnerships.

Risks and Considerations

While the technicals and valuation are favorable, investors must acknowledge risks:
- Near-Term Volatility: The stock's 52-week range ($1.69–$2.59) highlights sensitivity to macroeconomic shifts, such as consumer spending trends.
- Earnings Growth Challenges: EPS has declined by -9.5% annually over the past 12 months, though the 10-year EPS growth of 12% suggests underlying resilience.
- Stop-Loss Strategy: A $1.76 stop-loss (5.3% below May 28's close) is prudent to protect against a breach of long-term support.

The Case for Immediate Action

The combination of support at $1.81, volume-driven buying interest, and a 4.92% projected rise over three months (to $2.10) creates a compelling risk-reward profile. Investors should consider:
1. Entry Point: Accumulate shares near $1.81, where accumulated volume and the long-term MA provide a safety net.
2. Target: A $1.95 target (a 7.5% gain from $1.86) if resistance at $1.89 is breached.
3. Dividend Upside: The $0.06 dividend (yielding 7%) offers a cushion against short-term price swings.

Final Analysis: A Strategic Opportunity

AX1 presents a balanced opportunity for investors seeking growth and income. Technicals suggest a near-term bounce from support levels, while valuation metrics indicate the stock is priced to reward patience. The partnership with Frasers Group, though yet to translate into price gains, underscores management's focus on strategic expansion.

Final Recommendation:
- Hold/accumulate near $1.81, with a stop-loss at $1.76.
- Target: $1.95–$2.10 over the next three months.
- Risk Rating: Moderate, but mitigated by dividend yield and technical support.

In a market of uncertainty, AX1 offers a tangible entry point with asymmetric upside. For investors willing to monitor technical levels and endure short-term volatility, now could be the time to act.

Disclosure: This analysis is for informational purposes only and should not be construed as financial advice. Always conduct your own research and consult a licensed professional before making investment decisions.