Is the falling N Brown share price an opportunity?

As the N Brown share price continues to fall, this Fool wants to see if it could be an opportunity to buy cheap shares.

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I noticed that N Brown Group (LSE:BWNG) shares have been on a downward trajectory for some time. Is the current N Brown share price an opportunity to buy cheap shares? Let’s take a closer look.

Direct home shopping retailer

As an introduction, N Brown is a digital UK retailer specialising in clothing and footwear. It has recognisable brands under its umbrella including Jacamo, and Simply Be. Notably, it has roots stretching back over 160 years and is currently supported by close to 2,000 employees.

So what’s the current state of play with the N Brown share price? As I write, the shares are trading for 21p. At this time last year, the stock was trading for 47p. This is a 55% discount over a 12-month period.

Risks and the reasons behind the N Brown share price fall

I believe N Brown shares have come under pressure in recent months due to macroeconomic headwinds out of its control. Soaring inflation, the rising cost of raw materials, as well as a supply chain crisis have all contributed.

For example, soaring costs can eat into profit margins, which can then impact shareholder returns as well as investor sentiment. Supply chain issues negatively affect day-to-day operations such as product availability. Due to rising inflation, a cost-of-living crisis has emerged. Many consumers have less money to spend on clothing and footwear, as they prioritise food and energy, both of which have risen in price.

Finally, competition in the clothing and footwear market has intensified in recent years. This is linked to the rise of online fast fashion. More traditional retailers, like N Brown, are seeing more competition from companies that are able to make the most of the fast fashion trend and offer cheaper products to consumers.

Positives and my verdict

In terms of the positives, N Brown’s diversified business model is a plus point. It caters for different markets, such as the plus size market, as well as more affluent consumers through its JD Williams brand. The plus size offering, in particular, has risen in prominence in fashion in recent years. In addition, I believe N Brown’s long history sets it in good stead to be able to navigate times of volatility, like now, with useful experience.

Due to the N Brown share price drop, the shares look cheap currently on a price-to-earnings ratio of just over six.

So what about N Brown’s performance? Although I do understand past performance is not a guarantee of the future, I review it to learn more about a business. Looking back, I can see it has recorded consistent, although slightly falling, revenue and profit for the past four years. An interim report released today for the 26 weeks ended 27 August was a mixed bag. Revenue and profit dropped, but on a positive note, debt levels fell, and net cash increased. Both of these will help boost potential growth initiatives, as well as investor sentiment, in my opinion.

To summarise, it is clear to me that N Brown shares are a victim of current volatility. For this reason, I am going to keep them on my watch list for now. I will continue to monitor developments to see if I should change my stance in the near future.

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. 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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