Should I Choose French Connection Group & Safestyle UK PLC Over ASOS plc & Supergroup PLC?

This Fool investigates the prospects of French Connection Group (LON:FCCN), Safestyle UK PLC (LON:SFE), ASOS plc (LON:ASC) and Supergroup PLC (LON:SGP).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

French Connection (LSE: FCCN) is due to report its results on Monday, while Safestyle (LSE: SFE), a retailer operating in the home replacement market, released its trading update on Thursday.

Here I investigate if I should buy the shares of either company or whether ASOS (LSE: ASC) and Supergroup (LSE: SGP) offer better value. 

Opportunity at 28p?

French Connection is not a name that I find particularly attractive based on its track record and its prospects of growth. With a £27m market cap, the best outcome you can hope for is a takeover; its lowly valuation could attract buyers, in my view, but even then I would not expect a big equity premium. Its business is split between wholesale and retail, and I am concerned about the latter in particular. Its market value is down 53% this year, and while the bulls might argue that its valuation is cheap enough, I would consider its stock only after two quarters of solid trading updates. Meanwhile, I’d back the management of Safestyle. 

Safety at 248p

A manufacturer of uPVC windows and doors, Safestyle operates domestically in a buoyant market that is nicely growing and where it is gaining market share. Its half-year results showed that growth is not a problem, while its financials are rock solid. If anything, it would be nice to see a higher level of core profitability, but you’d be paying less than 14x 2015 earnings for its shares, and Safestyle could fare even better in the second half. If you had followed my advice in mid-July, you’d have picked up a defensive investment (+5%) that also offers a nice forward yield. If you are not interested in yield at all, and rich capital gains are all you can think of right now, then you should consider ASOS. 

Value at 2,558p

The market is not in love with ASOS, but as the online retailer recently pointed out it is on track to deliver a core operating margin of 4%, while its growth rate in the UK (about 40% of revenue) — as well as that in markets such as the US — presents the opportunity to buy a stock that currently trades 1,600p — almost 40% — below its 52-week high. That’s not to say that ASOS is a completely safe bet because you really have to take some risk to invest in it, but a fair value in the range of 3,200p and 3,500p is very possible if market volatility subsides — and if it doesn’t, there’s a chance that ASOS wouldn’t become much cheaper, based on fundamentals. Nick Robertson, its founder and previous chief executive, is no longer leading the business, but I think investors overreacted to the news in recent days.

Growth at 1,343p

Supergroup’s rally seems unstoppable, with its shares up 57% so far this year. Its full-year results, which were released in July, showed a strong growth rate for revenues, but even more noticeable was the the rise in its gross margin, up 120 basis points to 60.9% (2014: 59.7%). Pre-tax income rose only 2% to £63.2m (2014: £62m), while earnings per share of 59.1p were mildly better than one year earlier. Its net cash position has deteriorated, however. The market is willing to give credit to Supergroup — its shares are much cheaper than those of ASOS — but it must do more to convince me that it is a value play at around 1,300p a share. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK owns and has recommended ASOS. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »