I just bought more Superdry shares. Why?

Superdry shares have lost over 90% of their value over the past few years. So why has this writer recently been adding to his holding?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Man changing battery on electric bicycle

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

One of my moves in the stock market this month was to buy more shares in clothing designer and retailer Superdry (LSE: SDRY). But Superdry shares have had a very rocky few months. Indeed, it has been a terrible five years for the company, with the shares losing 93% of their value.

Why have I been buying?

Investment case

A lot of people think Superdry is a brand past its prime. Some investors question its business prospects at a time when many clothing retailers are struggling with inflation and an uncertain demand outlook.

I think the brand is a very powerful one. It is unique. One of the criticisms levelled against it is that it is the preserve of middle-aged men trying to show their coolness. But plenty of middle-aged men trying to show their coolness have deep pockets.

The company can sell clothes and accessories itself. But as the brand is iconic, the business can also license it for use by others. Licensing can be a smart way for a company to make money. If it has a strong brand, licensees may fork over large sums to use it. Much of that can be pure profit.

To boot, the company founder has spent his money buying Superdry shares on three occasions this year. Those transactions totalled over £800,000 and were all made at a higher share price than the current one. A director buying is not enough on its own to make me buy a share. But I do like management showing its confidence in a business by spending its own cash on shares.

Risks to Superdry shares

But if the investment case is so rosy, why have the shares declined so steeply?

At the end of last year, the need for new financing arrangements concerned investors. When they were agreed, the concern shifted to what those new arrangements were. Superdry had turned to a specialist lender, suggesting mainstream banks may have balked at the firm’s risk profile.

The company said last week that it is considering how to further strengthen its balance sheet and one option would be to issue new shares. That risks diluting existing shareholders such as myself.

In its first half, the company saw revenues grow 3.6% year on year. But it swung to a loss and issued a profit warning, cutting a forecast adjusted profit before tax for the year of £10–£20m to ‘broadly breakeven’.

Following its share price collapse, the company could be a takeover target. The founder said last month that there are “no plans to do this at the moment” but it remains a future option.

Why I bought

Clearly, Superdry has challenges.

But its market capitalisation of £87m looks dirt cheap to me.

Last month, the firm announced a plan to license its brand in key Asian markets for an upfront fee of $50m, payable in cash. If its partner is willing to pay that, I think they will develop the brand presence in a way that could help the company globally.

I also think the deal affirms the investment case I see here, especially about the value of the brand if it is properly exploited. Buying Superdry shares is clearly risky, but I also see strong grounds for optimism.

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.

C Ruane has positions in Superdry Plc. 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.

More on Investing Articles

A pastel colored growing graph with rising rocket.
Investing Articles

2 FTSE stocks that demonstrate the best (and worst) of the AIM market

Our writer looks at the performance of two very different FTSE stocks that highlights the pros and cons of investing…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

With a P/E ratio of 8 and selling for pennies, is this FTSE 250 share a bargain?

Christopher Ruane digs into a cheap-looking FTSE 250 share that sells an iconic product and considers whether it's really a…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Could the stock market crash in 2025?

Our writer considers some possible drivers for a stock market crash. Rather than try to time it, he's wondering how…

Read more »

Investing Articles

Why do so few people build a passive income?

For those putting a little money away, far more choose savings accounts over aiming to make a passive income from…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Could putting £20,000 into FTSE 100 stocks get me monthly passive income of £2,756?

The FTSE 100 is full of dividend shares offering generous returns. Our writer considers how much income he could generate…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing For Beginners

At fresh 52-week lows, is this the best value stock in the FTSE 250?

Jon Smith considers a value stock that's currently at low levels due to recent news, but he feels it shouldn't…

Read more »

Investing Articles

The Burberry share price rises on takeover rumours. But I still don’t want to buy

Speculation about a possible takeover sent the Burberry share price higher. However, our writer’s steering clear of the luxury fashion…

Read more »

Businesswoman calculating finances in an office
Investing Articles

With the rise in Barclays’ share price, £2k invested 5 years ago is worth this much

City analysts predict robust earnings increases ahead for Barclays, so can the upwards momentum of the share price continue?

Read more »