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Is it time to buy Superdry shares?

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Man in a clothing store in a medical mask because of a coronovirus.
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Like most listed companies with a high street presence, fashion retailer Superdry (LSE: SDRY) was pummelled by the coronavirus in 2020. By mid-March last year, its shares were changing hands for just over 100p. Since then however, they’ve bounced roughly 150%! Could there be more to come now the company’s been allowed to re-open its stores?

Superdry shares: positives and negatives

Based on the general reaction from consumers, things certainly look encouraging. By yesterday afternoon, reports suggested that high street footfall was nearly double that recorded last week. Although Superdry wasn’t explicitly mentioned, I’d imagine more than a few people wandered into its stores. 

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There are also reasons to be positive on the company’s ongoing ‘reset’ after years of underperformance. Back in January, CEO and founder Julian Dunkerton said Superdry was making “great progress” with its “influencer-led, digital marketing strategy.” This included a new partnership with football star Neymar Jr. As someone with 143m followers on social media, that looks to be quite a coup for the business. 

But will all this be sufficient to resurrect its image among younger shoppers? I’m not so sure. Long gone are the days when Superdry was the fashion brand to be seen wearing. Online giants such as Boohoo and ASOS, I’d argue, are now far more popular with Superdry’s original demographic. On top of this, the company’s balance sheet is a lot less robust than it once was. To be clear, it’ll be a feat for the company to return to the days when the shares changed hands for 2,000p a pop (2018). 

A more general argument against buying shares in any UK retailer now is that the rush to the shops will prove short-lived as savings made during lockdown run out. Alternatively, those who are able to continue spending will be more likely to go on holiday abroad or enjoy more time in pubs and restaurants. 

Superdry is a great example of the adage that investors should buy ‘when there’s blood on the streets’. Notwithstanding this, I wonder if the rally is almost done.

Better bet?

One example of a company I’d buy over Superdry shares right now is XP Power (LSE: XPP). A world away from the high street, the mid-cap manufactures critical power control components. Its share price is up over 9% this morning following the release of a decent trading update. 

While order intake over the three months to the end of March was pretty much flat relative to the same period in 2020, it was actually up 32% from the previous quarter. Partly due to a buoyant semiconductor sector, this goes some way to showing how well XPP has recovered from the pandemic. All told, revenue rose 16% to £57.1m over Q1.

Based on the current demand for its products, I can see this rebound continuing. Aside from this, XPP’s balance sheet looks solid with only £18.4m in net debt. Although not an income stock, news that the mid-cap would return 18p per share in dividends for Q1 is another sign of confidence.

Sure, nothing can be guaranteed. XP acknowledged today that Covid-19 uncertainty could still impact business. Moreover, at 25 times earnings, the shares weren’t exactly cheap before markets opened this morning. They’ll now be even more expensive!

Nevertheless, I’d buy this hot growth stock over a still-troubled retailer any day.  

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Paul Summers owns shares of boohoo group. The Motley Fool UK has recommended ASOS, boohoo group, and XP Power. 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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