A once-in-a-lifetime chance to buy penny share Superdry under 77p?

Penny share Superdry is trading near its lowest-ever level since its 2010 IPO. Is this a great time to buy or should I avoid this stock?

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Superdry (LSE:SDRY) stock wasn’t always trading in penny share territory. In fact, at its 2018 peak the fashion retailer’s shares were changing hands for over £20! How times change. Today, they’ve slumped to less than 77p each. The company’s market capitalisation is just shy of £75m.

So, what went wrong? Can the business shake off its penny stock status and return to its former glory? And is this potentially a once-in-a-lifetime chance to buy cheap shares?

Let’s explore.

A catastrophic fall

Back in January 2018, long-term Superdry shareholders could be forgiven for feeling smug. The stock had climbed 315% since its £5 flotation price less than eight years before.

Since then, the shares have crashed 96% from the peak and 86% from the IPO. This unfortunate saga serves as a useful reminder that there are no guarantees with stock market investing.

The company traces its origins to the founding of Cult Clothing in 1985. The Japan-inspired Superdry brand was born in 2003 and the first store opened in Covent Garden in 2004. It was a huge hit.

By 2015, the firm was boasting celebrity endorsements from the likes of Idris Elba. Proving particularly popular among younger consumers, the Superdry share price was rising on a volatile, but broadly upward trajectory.

However, the fashion industry is a fickle one and the brand’s since fallen out of favour. Increasingly, it appears consumers don’t want to pay a premium for its products, evidenced by shrinking sales and a worsening balance sheet.

The company has blamed many factors for its share price decline. The pandemic, the cost-of-living crisis, and this year it also identified poor weather as the culprit for underwhelming retail sales. Whatever the reason, it seems the brand simply isn’t as popular as it once was.

The route to recovery

This doesn’t mean a turnaround is impossible. Following a withdrawal of its “broadly breakeven” profit guidance for FY23, the Cheltenham-based retailer recently completed a £12m equity raise. This has injected much-needed liquidity into the business.

In addition, Superdry is taking steps to streamline operations. The company has identified £35m in cost savings from estate optimisation, logistics, better procurement, and a range reduction. It expects it will realise these efficiencies by FY24.

Looking ahead, the business is more optimistic. It anticipates it can deliver “a material uplift in underlying profitability over the medium term.” Plus, it would be remiss of me not to note the company still owns some valuable intellectual property in its unique brand.

In my view, if Superdry can deliver a more profitable, simplified business, it becomes a potentially attractive takeover target. A possible acquisition’s impact is hard to predict, but if it materialised, this could be good news for existing shareholders.

A rare chance to buy?

Superdry shares are trading at historic lows. Provided the company can chart a better course to financial health, brave investors might potentially make a good return from investing today.

However, the risk/reward profile of this penny stock is uncomfortably high for me. The shares may look cheap, but I prefer to invest on the basis of concrete results rather than unconfirmed optimism or takeover hopes. For now, I’m giving this potentially once-in-a-lifetime chance a miss.

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.

Charlie Carman 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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