If I’d invested £5k in penny share Superdry five years ago here’s what I’d have now

Investors in penny share Superdry are hurting after a tough time for the middle-market fashion retailer, but today’s bargain price looks tempting.

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Investors in penny share Superdry (LSE: SDRY) have had a horrendous time with the stock plunging out of fashion, then plunging and plunging again.

While most investors are running for cover some bold souls are sniffing a buying opportunity. So far, most will have regretted their bravado. Just because a stock has fallen, say, 50%, doesn’t mean it can’t halve again (or collapse altogether).

In fact, Superdry has fallen a lot more than that. If I’d invested £5,000 in its shares five years ago, I’d have lost a staggering 94.69% of my money. Today I’d have less than £260, after trading costs, in a major blow to my portfolio. Peak to trough, the Superdry share price has fallen from 2,074p on 5 January 2018 to just 81p today.

This stock just keeps falling

The fashion casualwear retailer and wholesaler has been through an incredibly turbulent time and there’s little sign of the collapse slowing. It’s down 46.42% over the last year year, 35.24% over three months and 22.1% over one month.

Last week, it fell another 5.02%. These numbers perfectly illustrate the dangers of trying to catch a falling knife.

Yet Superdry remains a solid brand and high street fixture. Full disclosure: I own eight or nine of its T-shirts, and the quality is perfectly acceptable. That may be a problem, of course, as I’m a middle-aged dad who thinks this makes me a cutting-edge fashionista when the truth lies elsewhere.

Oldies like me parading around with a Superdry logo on their chest scare off the cool kids. While it hasn’t completely lost the youth market, it’s not winning it either.

Sales have been declining while management has had to cope with the problems afflicting every other retailer, such as rising textile prices, labour costs and business rates, and the cost-of-living crisis. Shipping delays/cost rises haven’t helped.

It’s really, really risky

Co-founder and CEO Julian Dunkerton returned to salvage his ship in 2019, after a six-month struggle to rejoin an unimpressed board, but hasn’t turned things round yet. Hopes in January that Superdry would turn a profit floundered on poor trading in February and March. Sales are growing, but slower than hoped.

Dunkerton is closing shops and cutting back clothing ranges to save money, but this reinforces the image of a brand in long-term decline.

Still, I love a bargain myself, and today’s valuation of just 2.19 times earnings is certainly cheap. Yet I can see further pain ahead. Just this month Dunkerton raised £12m from a stock issue, diluting existing shareholders. The sale price was set at 76.3p, some 5.8% below today’s 81p share price.

Anybody investing in Superdry today must brace themselves for a long and bumpy road. The whole debacle evokes painful memories of Joules and Cath Kidston, while the cost-of-living crisis isn’t over yet. I’m tempted, but it’s too risky for me. People have lost a lot of money on this stock and I don’t want to join them.

I might end up kicking myself if Superdry gets its game on, but given all the uncertainties, I’ll stick to buying its T-shirts. At least I know they’re good value.

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.

Harvey Jones 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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