Yet this fashion brand remains a bargain.
The past year has been brutal for many shares. A whole host of companies that investors have thought of as 'sure things' have taken a pummelling. Just look what's happened to Tesco recently.
But there is a flip side to this. With so much fear about, the share prices of some really great businesses have been pushed down to ridiculous levels. This means there are real bargains out there ready to be snapped up.
Shorted to oblivion
You may or may not have heard of SuperGroup (LSE: SGP). It is a clothes retailer whose main brand is Superdry, a fashion label that combines faux Japanese lettering and vintage Americana fabrics and has been the height of cool in the past few years.
Back in the spring of 2010, SuperGroup shares were launched in an IPO at a price of £5. The shares then proceeded to rocket to £18 in early 2011 as the company's high-growth model was flavour of the month.
But the business has endured a torrid time over the past year. In May 2011 shares slumped because the retailer failed to get enough summer clothing into their stores as the UK went through a heatwave.
Then, in October of last year, SuperGroup had problems at a distribution warehouse, which resulted in shops getting too little stock and the wrong size stock. The total hit from this mistake was estimated at £9 million.
The net result of these gaffes was that the share price collapsed. From the peak of £18 in February of last year, the share price hit a low of 440p in November 2011. Quite simply, the short-sellers have had an absolute field day with this share.
But now that SuperGroup has been shorted to oblivion, it's worth taking a second look at the company. In my view, the fundamentals that made the firm so appealing a year ago still apply.
Still a great growth story
This is still a company with a strong brand, a brilliant design team and a great growth story. It aims to open 20 stores in the UK and 50 overseas in the financial year to April 2012. It is growing revenue and profit by around 40% a year.
The long-term goal is to have 150 stores in the UK; there are currently 80. Plus the scope for growth abroad is even greater -- already two thirds of sales are generated overseas, and I expect this proportion to increase. After all, the business is still to get a solid foothold in markets like China, the US and Germany. Suffice to say, there is a lot more growth to come from SuperGroup.
Admittedly, it is probably this rapid rate of growth which led to the warehousing difficulties. But SuperGroup is still a young company, and perhaps it is inevitable that it will have some teething problems. I am hopeful that these will be ironed out over time.
The brand isn't losing its lustre
But the real clincher for me came in the Christmas trading statement. Many SuperGroup bears have been saying that the fashion appeal of the retailer was bound to fade.
But I think the simplest proof about whether or not a brand or a company remains popular is like-for-like sales. And the Christmas trading statement said that like-for-like sales in December were up 9.3%. That is impressive, and is clear evidence that the Superdry brand is a long way from losing its lustre.
No wonder the share price has been rocketing recently. In the past six weeks it has risen a phenomenal 40%. And if you haven't jumped on board yet, I think the share price has further to go.
There are a couple of provisos. SuperGroup shares have a reputation for being volatile, so if you do get on board you should be prepared for a bumpy ride. Also, the firm needs to convince investors that it can manage its growth without making any more gaffes.
How do I sum up? Well, the current share price of 636p puts the company on a forward P/E multiple of just 11 -- and, remember, that is after the 40% rise. For a business that is growing at around 40% a year, that still looks cheap to me.
> Our latest free report has just been released. Make sure you don't miss '10 Steps to Making a Million'
More from Prabhat Sakya:
> Prabhat owns shares in SuperGroup.
