Is SuperGroup plc Now Overtaking Burberry Group plc?

Cheltenham-based Supergroup plc (LON:SGP) is as fashionable as it has ever been. Is it a better investment than Burberry Group plc (LON:BRBY)?

| 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.

In the past, the world used to be a series of wars and pestilence interspersed by episodes of peace.

But what then is the future? Well, walk down a city main street in mid-summer, and you will see girls in beautiful tops and short skirts, and men in bright t-shirts and skinny jeans. People are happy, laughing, flirting and chatting.

One huge art project

You see, the future is not drones and robots. We are unlikely to ever have flying cars, jet packs or time-travelling androids. The future really is sexiness, fun, fashion, bright colours, and happiness. The world is now one huge art project.

SuperGroup (LSE: SGP) is also a company which seems to me to be one big art project. Just about every young man in the country owns a Superdry t-shirt. I love their new range of clothes, and they seem to have improved the cut and finish of their garments. This is now a designer label which is expanding across the world, including investing £9 million to tap the booming fashion sector in China.

Not surprisingly, a company which is growing as fast as this commands a fairly lofty valuation. But, to me, a P/E ratio of 18.72 seems about right. SuperGroup does not yet pay a dividend, but one is pencilled in for 2016.

This is a brand which still doesn’t yet have the allure of a Burberry (LSE: BRBY) or a Ralph Lauren, but I see this as one of fashion’s future stars, and definitely a company worth buying into.

Elephants don’t gallop

There is no doubt that Burberry has a stronger brand than SuperGroup, and it is a far bigger company, with a market cap of £7.16 billion as opposed to £1.17 billion. It has seen phenomenal growth in sales over the past decade as sales in emerging markets have soared. It’s trademark beige tartan scarves and jumpers have sold like hot cakes around the world.

However, what concerns me is that this greater size makes it more difficult for the business to grow. I just wonder whether this company has now reached the limits of its growth. My hunch is that earnings are likely to level off, and the share price is as likely to fall as rise. A P/E ratio of 21.04, for such a large company, leaves little margin for error.

That’s why I would pick SuperGroup over Burberry. To me it is the fresher, younger brand with the greater potential for growth. A stronger management team, combined with ever improving design, a huge variety of products, and an ambition to sell its wares across the globe, means it is now of the UK’s leading fashion companies.

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.

Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has recommended Burberry. 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 For Beginners

Here’s how I’m trying to prevent a stock market crash from ruining my portfolio

Jon Smith explains which shares he's avoiding and what he's thinking of buying to try and protect his portfolio from…

Read more »

Bearded man writing on notepad in front of computer
US Stock

Call me crazy, but here’s why I’m eyeing up the CrowdStrike share price

Jon Smith notes the carnage caused by Friday's global outage, but flags up why he's thinks the CrowdStrike share price…

Read more »

Investing Articles

What do Hargreaves Lansdown results mean for the share price?

The Hargreaves Lansdown share price has surged in recent months on takeover expectations, but what will the recent results mean…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Newly minted S&P 500 stock CrowdStrike just crashed! Here’s why

Shares of S&P 500 firm CrowdStrike collapse as the company lies at the centre of a global IT outage. What…

Read more »

artificial intelligence investing algorithms
Investing Articles

Is Nvidia heading for the mother of all tech stock crashes?

Nvidia stock has soared, and the company briefly became the most valuable on the planet. But not everyone’s an AI…

Read more »

Dividend Shares

The BP share price is down 15% in 3 months. Time to buy?

In the space of just a few months, the BP share price has fallen by a double-digit percentage. Is this…

Read more »

Investing Articles

A 5.4% dividend bargain I’ll buy over Lloyds shares

Harvey Jones loves his Lloyds shares but now he's found a high-yielding FTSE 250 stock that may offer even more…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Recommended by Warren Buffett, this top hedge fund’s betting on Rolls-Royce shares

When Warren Buffett ended his previous investment partnership, he recommended Bill Ruane’s Sequoia Fund. Today, its largest investment is in…

Read more »