I’ve been adding penny stocks to my portfolio in recent months. The reason is that the FTSE AIM All-Share index is down 34% since September 2021. I think this presents me with buying opportunities. And despite the risks involved, I’m ready to invest in this promising penny stock.
A fashionable niche
Sosandar (LSE: SOS) is a British designer and retailer of womenswear. The online firm sells its own branded products that are designed in-house. It describes its customers as “style-conscious women who have graduated from price-led alternatives“.
That is, women who have moved beyond the fast fashion provided by the likes of boohoo and ASOS. The company believes this demographic is underserved. Its recent strong financial results appear to justify that belief, as the fashion retailer enjoyed a record quarter to the end of December.
Revenue increased 30% year on year to £11.6m. The company saw growth in every single product category, with knitwear, formal tailoring, coats and partywear performing exceptionally well throughout the winter season.
This solid trading period also marked a fifth straight quarter of profitability for the business. It expects full-year revenue of £42.8m, with pre-tax profit of £2m.
On the balance sheet, the company has net cash of £4.6m.
Fashion savvy founders
Various UK celebrities are regularly seen wearing Sosandar’s clothes. These include TV presenters Holly Willoughby and Fearne Cotton, as well as actresses from soap opera Coronation Street.
A large part of the brand’s growing popularity can be explained by the backgrounds of its co-founders Alison Hall and Julie Lavington. They were the editor and publishing director respectively of Look magazine, which was a leading UK women’s fashion and celebrity publication.
They left the magazine to form Sosandar in 2016 and serve as co-CEOs. Needless to say, they both have an attuned knowledge of which fashion styles resonate with their customers. The brand has established a loyal and growing customer base, along with a very strong social media following.
Sainsbury’s partnership
Sosandar’s latest quarter also set a new record for sales via third-party partners. The retailer has existing partnerships with the likes of John Lewis, Marks and Spencer, The Very Group and Next.
And the company recently announced it has signed a deal with supermarket giant Sainsbury’s. This will see it sell a curated selection of clothes online, before moving to selected Sainsbury’s stores later this year. Importantly, this gives Sosandar an phyiscal stores presence for the first time.
All this positive news has sent the share price up 18% since the start of the year. However, over one year the stock is actually down 13%.
At 23p per share, Sosandar now sports a market cap of £52m. Based on 2023’s forecast earnings, the stock has a forward price-to-earnings (P/E) ratio of 31. I don’t think that’s an eye-watering multiple for a fast-growing brand.
It’s not without risk, of course. The macro-economic environment remains challenging for all fashion retailers. Sales could take a hit during a recession.
Longer term though, I see no reason why this brand can’t grow beyond its core UK market and expand overseas. Overall, I’m encouraged enough to start a small position in this penny stock in the coming days.
