It’s been a disappointing first half of 2014 for online clothing retailer, N Brown (LSE: BWNG). That’s because shares are down over 20% in the first half of the year, while the FTSE 100 is up around 1% over the same time period. However, after an encouraging update from the company, now could be a good time to buy shares. Here’s why.
The Right Side Of The Market
Unlike many of its peers, N Brown has started off as an online retailer that is expanding into physical, high-street stores. As a result, it has not experienced the issues faced by many peers of lacklustre like-for-like sales growth and unprofitable stores. It has also not been exposed to a declining UK high street and the difficulty of getting out of long-term leases or even of selling property. Indeed, its online-focus has benefited from the increasing popularity of the internet to purchase clothing: a trend that looks set to continue into the future. So, N Brown appears to be well placed to deliver growth going forward as a result of having the right exposure at the right time.
Linking With ASOS: An Opportunity
Much of the share price fall during 2014 (and the thus far fall today) has been a result of poor performance at sector peer, ASOS (LSE: ASC). It reported a profit warning recently, citing unfavourable exchange rates as well as larger-than-expected losses in China (which it has targeted as a key market for the firm) as it told investors it was unlikely to meet full-year expectations.
However, N Brown is not ASOS and is not experiencing the challenges that are being faced by ASOS. So, to simply lump the two together could create an opportunity for investors in N Brown, since it remains highly profitable and on-track to deliver full-year forecasts — as its recent update showed. In other words, the fall in N Brown’s share price may be unjustified and could mean shares are undervalued at current levels.
Looking Ahead
Indeed, N Brown currently trades on a price to earnings (P/E) ratio of 14.3. This appears to be good value when you consider that the FTSE 250 (to which N Brown belongs) trades on a P/E of 19.2. Furthermore, N Brown is forecast to deliver strong earnings growth of 6% in the current year and 9% next year, thereby showing that it could be a star performer over the medium term.
