What's down: Fawaz Alhokair Group has set Saudi Arabia's fashion world ablaze in recent months, but analysts say the stock's rise should come to an end soon.
Saudi retailer Fawaz Alhokair's plans for Central Europe concern analysts
Fawaz Alhokair Group, a Saudi Arabian clothing retailer, has been one of the hottest names in the kingdom this season.
The retailer, which owns the local franchise rights to western brands including Gap and Zara, has outperformed the Saudi Tadawul index since the end of March as its ambitious expansion plans generated a buzz.
But analysts are now worrying whether the stock may have overshot the mark.
The share price fell 0.83 per cent to 47.70 Saudi riyals in trading yesterday, after Saudi Arabia's NCB Capital downgraded the stock to "neutral" with a price target of 50 riyals.
The retailer is expected to receive a boost from FG4, a new line from George Davies, the British fashion designer behind Asda's budget George brand and Marks & Spencer's Per Una in the UK.
Fawaz Alhokair has also embarked on a daring expansion plan taking it to a number of Central Asian countries, including Kazakhstan, Uzbekistan and Azerbaijan. But that may be a step too far, analysts said.
"It's not like going from Saudi Arabia to Dubai," said Farouk Miah, an analyst at NCB. "It's a completely new geography, a new culture and a new language. "There may be some margin pressure from expansion," he added.
The company is yet to announce its next set of plans to ensure it remains in vogue among investors.
The stock should remain about 49 riyals for the foreseeable future unless the company could maintain its recent levels of attention, said another analyst, who asked not to be identified.
"We haven't [seen] any anticipated plan to expand to other markets in the near term. We don't see the share price going any higher," the analyst said.
Fawaz Alhokair, which imports much of its inventory from Europe, is also particularly vulnerable to a depreciation in the value of the US dollar. Even so, the company looks likely to benefit from the increasingly westernised tastes of Saudi Arabia's vast youth population.
"The Saudi lifestyle is changing," the analyst said. "This generation is wearing jeans and T-shirts, instead of wearing the thobe."