It’s been a very disappointing year for shareholders in Supergroup (LSE: SGP). That’s because shares in the high-street clothing label have fallen by one-third in 2014 alone.
Of course, news flow during the course of 2014 has not always been positive. For example, Supergroup announced in its May update that profit for the full-year is likely to be at the lower end of expectations. Whilst the news wasn’t particularly bad it still prompted a sudden fall in the share price.
Likewise, today has seen no announcement by the company and yet shares are up 8%. So why are they are up so much today? And why might they have been oversold during the course of 2014?
The ASOS effect
Sector peer ASOS (LSE: ASC) has had an extremely rough ride in 2014, releasing a profit warning earlier this year. It warned of greater losses than it had expected in China (which is seen as a key market for the group) as well as unfavourable currency movements — both of which were likely to mean the on-line retailer would miss full-year expectations. As such, ASOS saw its share price fall by around one-half, although it’s worth pointing out that shares are still up a whopping 650% over the last five years.
The news had a major knock-on effect on Supergroup and was the catalyst for its share price weakness in 2014. Surprisingly, there has been no announcement from ASOS to prompt today’s 8% rise and it appears as though Supergroup’s position at the top of the FTSE 250 leaderboard is due to non-ASOS-related factors.
Oversold?
Of course, Supergroup’s bounce today could be due to the market realising that shares do have potential and that they have been oversold. This view has been stated by various brokers recently and may have prompted an upswing in demand for the shares. Indeed, Supergroup now trades on a price to earnings (P/E) ratio of 14.6, which is roughly in-line with the FTSE 100’s P/E of 14.2. Furthermore, Supergroup offers above-average growth prospects, with earnings per share (EPS) forecast to grow at a double digit rate over the next two years.
A High Beta
Supergroup’s rise today could also be due to the stock having a relatively high beta of 1.4. This means that (in theory) for every 1% rise in the wider index, Supergroup’s share price should go up by 1.4%. With the FTSE 100 showing strong gains today, a high beta could be a factor alongside positive market comments, a general view that shares have been oversold, as well as relatively strong growth prospects. Together, it appears as though these factors have combined to put Supergroup at the top of the FTSE 350 leaderboard, up over 8% at the time of writing.
