The Swedish fashion wonder: Clothing retailers' growth in a stock market perspective

Sammanfattning: Clothing retailers’ historical high growth during the 2000s has created an interest and expectations for growth also in the future. Media focus on a continued high growth pace, but there are critics; some fear that the companies will not be able to deliver in line with expectations, i.e. that a bubble is about to burst on the stock market. To be able to analyze whether that could be the case or not, this thesis aims at exploring the growth expectations incorporated by the stock market. Seven clothing retailer companies, all listed in Sweden, are examined. Through the concept of reverse engineering, the implied long-term growth rate is solved for, using share price, book values and forecasts in EPS. An implied long-term growth rate that is higher than our benchmark of expected inflation and GDP growth could imply an over-priced share. A cross-sectional study, performed five times a year, however shows that the average historical, as well as the current, implied long-term growth rates are no higher than our benchmark. Instead, growth rates are lower, which could imply either that the shares are traded at a too low price or that the short-term forecasts of growth in EPS, set by analysts, could be too high. In addition to the study of implied long-term growth, a firm-specific growth analysis is performed on each of the seven companies. It assesses and compares historical- as well as short-term and long-term growth rates.