Shein eyes a valuation rivalling H&M. Will the market buy it?

Online fast-fashion retailer Shein believes it can achieve a valuation on par with industry giants H&M and Zara's parent company Inditex, according to documents obtained by the South China Morning Post from investors. The documents highlight Shein's global customer base and business model as key strengths, suggesting it should be viewed as a global fashion leader like Inditex and H&M.

Analysts project Shein's net profit to grow at a compound annual rate of 12% between 2025 and 2028, outperforming Inditex's 9% and H&M's 4%. The company touts its "LATR" model, which tests products in small batches before scaling up through its smart supply chain, resulting in inventory turnover cycles of just 36 days - significantly faster than Inditex's 71 days and Fast Retailing's 114 days.

Shein seeks a valuation multiple that matches or exceeds Inditex and H&M, which typically have price-to-earnings ratios of 25 and 20, respectively. The company plans to take investor orders for its Hong Kong initial public offering next week, with a target valuation of over US$30 billion - surpassing H&M's US$26 billion valuation but still far below Inditex's US$208 billion.

However, Shein faces challenges, including over 40 pending lawsuits over alleged intellectual property rights violations, forcing it to set aside about US$80 million in provisions. Additionally, legal and regulatory risks loom as lawmakers in the U.S. and Europe tighten regulations on customs rules, threatening Shein's low-cost cross-border shipping model, and rising logistics and supply chain costs are weighing on profit margins.