Undervalued 2024 Growth Opportunity: ASX Small-Cap Stock

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In the challenging landscape of 2023, The Reject Shop Ltd (ASX: TRS) has emerged as a standout ASX small-cap stocks performer, defying market conditions to achieve remarkable profits and earnings growth.

Positive Trajectory in 2023

Since January 3rd, The Reject Shop has exhibited an impressive ascent, with its shares witnessing a substantial 21% increase. This outperformance stands in stark contrast to the more modest 2% growth observed in the All Ordinaries Index (ASX: XAO) during the same period.

Fund Manager's Bullish Outlook

Leading fund manager Michelle Lopez, Head of Australian Equities at Pie Funds Management, sees further potential for outperformance in this ASX small-cap stock. Lopez emphasizes that The Reject Shop's focus on discount retailing aligns well with consumer trends amid economic challenges, positioning it as "right for the times." She anticipates margin uplift potential, foreseeing robust organic earnings growth throughout 2024.

Resilience Amidst Consumer Challenges

While numerous Australian retailers grapple with declining sales due to economic pressures, The Reject Shop (ASX TRS) has navigated these challenges successfully. Targeting cost-conscious consumers seeking discounts, the company has capitalized on the broadening segment of Australians facing financial constraints amidst inflation and high-interest rates.

FY 2023 Financial Highlights

The Reject Shop's full-year results for FY 2023, announced on August 24th, showcased its resilient performance. The small-cap stock reported a notable 5.8% YoY increase in sales, reaching $819 million. Earnings before interest and tax (EBIT) surged impressively by 35.7% from FY 2022, reaching $21 million. This robust performance translated into a remarkable 63.4% increase in net profit after tax (NPAT), totaling $10 million.

Strong Financial Position and Shareholder Returns

The Reject Shop, maintaining a strong balance sheet with a net cash position of $77 million at the end of FY 2023, reinstated dividend payments. Additionally, the company announced a planned on-market share buy-back of up to $10 million, reflecting confidence in its financial health and future prospects.

Amidst economic uncertainties, The Reject Shop stands as a testament to adaptability and strategic positioning, offering investors a promising narrative of growth and resilience in the small-cap segment.
Location: Australia

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