Is the falling Superdry share price an opportunity or one to avoid?

Jabran Khan delves deeper into the tumbling Superdry share price and decides if the stock is an opportunity or a value trap.

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I noticed that Superdry (LSE:SDRY) shares are still on a downward spiral. I want to explore if the share price at current levels is an opportunity to buy cheap shares for my portfolio with a view to a longer term recovery. Let’s take a look to help me decide if I should add the shares to my holdings.

Superdry share price continues to fall

As a quick reminder, Superdry is a UK-based clothing brand with an extensive presence operating over 700 branded stores across 61 countries. Its products combine vintage American style with Japanese-inspired graphics.

So what’s the current state of play with Superdry shares? Well, as I write, the shares are trading for 134p. At this time last year, the stock was trading for 385p, which is a significant 65% decrease over a 12-month period.

The bull and bear case

Superdry has seen its brand recognition and performance fall by the wayside in recent years. I admit I used to own many Superdry items many years ago whereas now I wouldn’t consider them. I suppose this is the nature of fashion, trends change. The rise of online fast fashion has hurt brands like Superdry massively too. Online disruptors with their cost-effective alternatives have surpassed more traditional retailers like Superdry.

Looking at performance, I can see Superdry’s revenue and profit has been falling year on year for some time now. This is not a great omen from an investment point of view.

Superdry has attempted to take steps to regain traction, and boost performance levels. In recent times, it released a series of new collections to try and appeal to the masses once more. Personally, I’m not sure this will be enough to kick start a recovery.

In respect to the business side of things, Superdry has looked to increase efficiencies and cut costs. It has decided to utilise robot technology to streamline operations in its warehouses. This initiative could help cut costs and boost an ailing balance sheet.

Another potential positive I noted was that Superdry CEO Julian Dunkerton purchased over £1m worth of shares at the end of May. Insiders buying shares is usually viewed as positive. This is because if those charged with the success of the business, who have the inside track, are willing to part with their cash, then perhaps investors like me should follow suit.

My verdict

Reviewing the investment case, I would not add Superdry shares to my holdings. The negatives outweigh the positives for me. Furthermore, macroeconomic headwinds such as rising costs and the supply chain crisis could have a further detrimental impact on the business. Rising costs could squeeze profit margins that are already under pressure. The supply chain crisis could affect operations and sales.

I wouldn’t be surprised to see the Superdry share price fall further and I believe it could be a long, tough road back for it. There are better stocks out there that I plan to add to my holdings that have better growth prospects and already provide consistent and stable returns.

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.

Jabran Khan 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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