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Should investors race to buy new growth stock Footasylum plc?

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New entrants to the market understandably generate excitement among investors. That said, not every company will go on to be a winner for its expectant holders. With this in mind, does it make sense to buy into sports clothing and shoe retailer and newly AIM-listed Footasylum (LSE: FOOT)?

Future growth star?

Launched in 2005 by David Makin — one of the founders of JD Sports (LSE: JD) — Footasylum stocks brands such as Nike, Puma and Adidas as well as its own-brand ranges including Kings Will Dream and Glorious Gangsta. Perhaps unsurprisingly, the retailer identifies “fashion conscious” 16-24 year-old consumers as its core audience.

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According to its prospectus, the firm wishes to expand its UK store estate from 60 to “at least” 150 sites, with the intention of opening eight to 10 stores per year over the medium term. “Significant” investment in growing the company’s digital presence — as part of a wide-ranging upgrade to its IT systems — is also planned.

Of course, it goes without saying that a stock market listing won’t necessarily make it any easier for the £171m cap to compete in an already crowded market that’s experiencing difficult conditions thanks to rising inflation and slowing wage growth. The fact that its target market is notoriously fickle in terms of loyalty also can’t be overlooked.

Nevertheless, I’m cautiously optimistic on Footasylum’s ability to generate decent returns for investors over the medium term. The booming trend for ‘athleisure’ doesn’t look like it’s going away anytime soon and recent results from the company (full-year revenue doubled over the last two years to £147m and EBITDA soared from £2.2m in 2015 to £11.2m in 2017) have been hugely encouraging. Factor-in a recently launched wholesale arm and Footasylum ticks enough boxes to get me interested in its stock.

A safer option?

Of course, not everyone will be attracted to smaller companies just coming to market. For those investors with a lower tolerance for risk, aforementioned multichannel retailer JD Sports may be a better alternative.

When I last looked at the company back in June, I couldn’t help but feel that the market’s negative reaction to JD’s latest trading update was overdone and simply an example of expectations outpacing reality. Based on the more-recent set of results, it looks like I may have been right.

In September, the Bury-based business released an excellent set of interim numbers. These included record pre-tax profit of £102.7m for the 26 weeks to July 29 — a 33% increase on the same period in 2016. In addition to growing revenue by more than 30% (to £1.17bn) over the reporting period, the company also opened 35 new stores, 23 of which were in mainland Europe, demonstrating just how keen JD is to grow its international footprint.

But the good news doesn’t stop there. Only a few days after the release of its half-year figures, JD announced it had entered the South Korean market after purchasing a 15% stake in fellow footwear retailer Shoemarker’s Hot-T brand for £5.5m. Broker Peel Hunt now believes the company is likely to increase its exposure to Asian markets as well as potentially entering the US further down the line.

Shares in the £3.5bn cap won’t double overnight but the quality of its business (consistently rising revenue, profits and returns on the money it invests) coupled with its plans for global growth can’t fail to impress.

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Paul Summers has no position in any of the companies mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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