Editor’s note: This article was first published in March 2011, the week after the 11 March earthquake in Japan; the closing price of €51.90, the suggested entry level, the price targets and the store figures are from then. Prices may not be comparable with current quotes after later share splits.
We have all heard the news about Inditex closing stores in Japan following the earthquake, which has led to a fall in its share price as the news reached the financial markets. Inditex closed today’s session at €51.90. That said, Inditex may well be offering us a great investment opportunity. Let’s take a close look.
It is normal for a company’s share price to fall. In fact, some companies with no presence in Japan at all will be affected, since any disaster of this kind ends up affecting the markets one way or another, though not necessarily.
Inditex has two points in its favour. The first is that it has around 60 stores in Japan, and only 20 have been affected. Even calling them “affected” is scaremongering, when the reality is that they have suffered hardly any damage and these were simply precautionary closures.
The second point is that its market share in Japan is minimal. I don’t have exact percentages, but I’m sure it is no more than 5%, so the temporary closure of these 20 stores is not really going to cause significant losses, and the company will recover its value in the short to medium term.
Distorted reporting of the news may push the share price down a little further, so the moment it approaches €50.30, or drops below that, would be an ideal time to invest. It won’t be long before Inditex is back above €65 and, in time, above €70 again, which is what it is really worth. As things stand today, for me, and at the price this company is reaching, it is a very profitable investment.
You could say it is one of those moments Warren Buffett likes: a stock going through a temporary rough patch, a sick stock you have to stay with until it recovers.
Note: Nothing in this article is meant to encourage anyone to buy; it is an entirely personal opinion. Remember that investing in the stock market always carries a risk of loss and depends on factors beyond any investor’s control.
Featured image: Kellykaneshiro, CC0 1.0, via Wikimedia Commons.
