PER 13 if the Zalando share reaches it (no growth!)

that Zalandostock (NASDAQ: TSO) has fallen really, really low. The draw trip last went to a share price of just over 25 euros. Foolish investors know the dilemma: in the short term, there are concerns about growth. In addition, the consumer climate is cloudy. It seems a bit like e-commerce is now dying in the cocktail of reopening and rising inflation.

How likely that is, of course, is up to each individual investor. Personally, I do not think e-commerce is disappearing or losing its appeal. Whether consumers are now even more and more targeted at online shopping, I’m also waiting to check.

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If we look at the fundamental valuation of the Zalando share, the price-to-sale ratio of less than 0.7 immediately catches the eye. But it can also turn into a price-to-earnings ratio of 13. Yes, even without growth! Only something should be done about the net results.

Zalando stock: A P / E ratio of 13 would be possible without growth!

The Zalando share currently has a market value of around € 6.7 billion, which is certainly very, very little. With a net profit of DKK 234 million. EUR recently reported, the price-to-earnings ratio (P / E) would currently be 28.6, which is certainly very, very cheap. Most foolish investors prefer to expect continued growth to have a lower P / E ratio.

However, we must not forget that there are other ways. An increasing net margin even with constant turnover e.g. Last year, the net margin was only 2.25%, which is very low. If the e-commerce player manages to increase this value to e.g. 5%, the net result will increase to EUR 500 million. Yes, even a little more. If this increase in profitability succeeds, a PER of around 13 could be possible without further sales growth. Wow, that’s pretty interesting. Not only in theory.

Because I want to give you two more questions regarding the Zalando stock. First of all: How likely is it that further growth will be consistently lacking in the medium to long term? Management initially expected the gross volume of goods to grow to EUR 30bn. With a constant net margin of 2.25%, this alone can result in a profit of around DKK 500 million. EUR in the medium term. But I also believe that when operating volume increases, the net margin should be higher. Perhaps without growth and rising net margin, this assumption is more conservative. Both can together lead to even more favorable valuations.

Low profitability sufficient!

In the case of the Zalando share, low profitability is therefore sufficient in various ways. The e-commerce player only needs to continue to grow or increase its own net margin in the medium term for the current valuation target to look really cheap. The question again: how likely is it that this ecosystem is dying or that the mega-trend in e-commerce in the fashion sector will lose ground in the long run?

I think that is very hypothetical. However, the cheap valuation is real. This is certainly an opportunity for long-term investors who are now looking through the dark clouds.

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Vincent owns shares in Zalando. The Motley Fool owns shares in and recommends Zalando.

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