Invast Blog

ASX Small Cap Favourites: Harvey Norman Holdings Limited

Harvey Norman shares are back at a crazy level again. Discretionary retail stocks have a habit for overshooting in good times, like now, and undershooting when times are tough. We were recently interviewed by CNBC on Australia retail stocks and made this argument clear live on air last week. If you missed the interview, click here to listen.

We look at Harvey Norman as a property business with a retail arm attached, that brings in cash. The retail business is really like an option value on future earnings. The basis of the stock is the property portfolio. When times are tough, Harvey’s still owns the property book. A little old school, but that is why it has been around for some many years and during that period various retailers have come and gone.

In retail, the balance sheet is king because every business gets it wrong at some point in the cycle. Having the financial means to make mistakes and reposition is the greatest asset.

The reason we think Harvey Norman shares are at crazy levels is because of low interest rates, it makes a double whammy impact for the business. Firstly, the property portfolio is valued higher because lower cap rates are used. Low cap rates increase valuations, higher cap rates reduce valuations. When interest rates fall in an economy, cap rates also fall, resulting in higher property prices.


Low interest rates also encourage more discretionary spending. So Harveys benefits from its property portfolio going up and its operating business making more money. But retail is cyclical and at some point in the cycle, the tables will turn. The time to buy Harvey Norman is when the stock trades at a discount to the replacement cost of its property book. That time was in 2012. The time to sell Harvey Norman is when the stock trades at a large premium to its property book. That time is now.

Invast is very well placed to bring you some huge opportunities in the coming months. Execution costs for ASX stocks are 0.06% (6 basis points) above minimum charge, which means for a trade with a notional exposure of AUD 10,000, the applicable commission is only AUD 6.00.

To be onboard with the full set of benefits, you need to become an Invast client.

You can self-navigate through our simplified account opening process here.


Peter Esho

Chief Market Analyst

Peter Esho is a member of Invast’s Investment Committee and Chief Market Analyst at Invast Financial Services in Australia.   The Invast’s Investment Committee constructs professionally constructed global thematic portfolios of Direct Market Access (DMA) CFDs over highly liquid global shares and ETFs through its new PortfolioInvestor platform. Since 1960, the Invast Group has grown to become one of the largest and most successful global brokerage firms, offering state-of-the-art trading technology and unparalleled service catering to all levels of traders.

Invast Financial Services Pty Ltd (ABN 48 162 400 035) is regulated by the Australian Securities and Investments Commission and holds an AFS Licence 438283 which authorises it to carry on a financial services business in Australia.

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