Dr Martens (LSE: DOCS) shares have fallen 67% since going public in January 2021. Yet consumer discretionary stocks such as this can make very good long-term investments if they’re bought at the right time.
Here, I’m going to consider whether I’d buy Dr Martens shares today?
Marching towards £2bn?
At first glance, there’s a lot to like about the FTSE 250 company.
For starters, it possesses a very powerful brand. From rebellious punks in the 1970s to young social justice activists today, the Dr Martens brand has successfully appealed to many generations.
Powerful branding creates loyalty among customers and can be a strong competitive advantage. This helps explain why Dr Martens currently sells 36 pairs of shoes per 1,000 people in the UK.
Secondly, the company continues to generate top-line growth. In the 12 months to 31 March, the firm recorded revenue of £1bn, a 10% (or 4% in constant currency) rise from the year before.
This was the first time the bootmaker has reached the revenue milestone of £1bn. It now has ambitions to become “a £2bn global footwear brand“.
The company is also making progress with its direct-to-consumer sales strategy. In its latest results, annual revenue from these channels rose 16% to £520m, accounting for a record 52% of total sales. This is important as the firm makes more profit selling directly to consumers rather than through wholesale partners.
Still, it wasn’t all good news, as its pre-tax profits fell 26% to £159.4m. This was due to slower-than-anticipated revenue growth, investment in new stores, and a £10.7m hit from the foreign exchange translation of its euro bank debt.
Profitability also suffered due to self-inflicted “mistakes” at its new Los Angeles distribution centre.
Skin in the game
Turning to the valuation, the shares currently trade on an undemanding price-to-earnings (P/E) ratio of 11. That’s almost the cheapest they’ve been since listing. The market cap now stands at £1.42bn.
I’ll also highlight that on 14 July, chief executive Kenny Wilson bought just under 310,000 shares at a price of 129p. This transaction cost almost £400,000.
I do like to see insiders increasing their skin in the game. It shows that they’re more aligned with everyday shareholders in seeing the company succeed. Plus, it suggests they think the shares are potentially undervalued.
My take on Dr Martens
I had a pair of ‘Docs’ many moons ago when I was at school. I seem to remember they were great for sliding across frozen puddles in the playground. Fast-forward to today, and I’m eyeing up a pair of vintage-style boots from the firm’s Made In England collection.
Therefore, I find the longevity of the brand very impressive. Couple this with the cheap valuation and a dividend yielding 4%, and I think this could be a solid investment over the long run.
That said, I’d personally like to see evidence that profits aren’t in a downward spiral before I invest. So I’ve put the stock on my watchlist for now.
