Gear4music (LON:G4M) is marching to the beat of the online opportunity in the niche area of musical instrument retailing. Traditional competition is fragmented and only partially online, so the market is wide open. With sales growth of 46% in FY16, G4M now has 3.5% of the UK market, and is focusing on the European market, which is six times larger. We think the company has scope for significant revenue growth and, assuming undemanding economies of scale at operating margin level, we value the shares at 186p based on peer comparison and DCF modelling.
Disruptive niche retailer
G4M is a disruptive online retailer selling tangible product in a specialist interest space. Management is focused on realising its substantial opportunity. The musical instrument market is fragmented, and online competition is limited. With 10 million unique visitors in FY16 and a 34% jump in active users, G4M continues to invest in its platform of 19 international websites, customer marketing and service capabilities, together representing a growing competitive lead and barrier to entry.
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