I think this growth stock could be a great addition to my current set of investments. Its financials, including its revenue growth and margins, are really promising to me. Also, I think it could be considered undervalued right now.
Of course, there are some risks, and I’ll explain the ones I’ve identified.
But overall, I’m quite confident in this company. Here are the main reasons why.
What is it?
The company in question is Frasers Group (LSE:FRAS).
The firm is known for its sports and leisure retail chains. For example, it owns Sports Direct, House of Fraser, Flannels and Jack Wills.
It also owns brands like Everlast, No Fear, and Slazenger.
While the management has primarily focused on the UK, it is also expanding internationally.
Frasers continues to make acquisitions of companies and brands to diversify its business portfolio. It also has investments in retail and non-retail properties.
It’s worth noting the firm has been in the news for concerns over its zero-hour contracts and working conditions. That’s a risk for me as a potential investor, as a company’s financials can always be affected by operational shifts forced by legal pressures.
The financials that are crucial to me
First of all, I think it’s important I get some perspective on the share price. It hasn’t been a smooth ride thus far:
However, things look on the up over the last five years:
Significantly, over the last three years, the firm has reported a 16% revenue growth rate on average.
Also, it boasts a net margin of 9.40% now, which is pretty good compared to a sector median of 2. That’s based on data from 1,105 companies in the retail industry.
Also, a nice price-to-earnings ratio of around 7 makes the shares look quite appealing to me.
Cheap and growing seems the best of both worlds.
The risks I’ve noted
While the growth, profitability and value of the investment look promising to me, I’m not convinced the balance sheet is as stable as it could be.
It’s imperative that a firm doesn’t have too many debts. Particularly because if hard economic times hit, too many liabilities can mean it has less room to protect itself and would need to sell more assets to raise the necessary cash. That can seriously affect the organisation’s growth.
At the moment, it has 63% of its assets taken up by liabilities. That’s not terrible, but there’s room for improvement for sure.
Additionally, the company doesn’t pay a dividend at all right now. While it has previously, like between 2007 and 2010, it hasn’t since.
A lack of a dividend can mean a little more risk in relying solely on the share price growing for profit.
I might buy it
This is quite a well-known company, and I’m certainly not the first to notice its worth.
However, popular investments can be some of the best. Frasers looks like one of these to me.
What I really need is time to decide. I have a lot on my watchlist right now.
Nonetheless, this investment seems like a great and relatively low-risk way to diversify my portfolio away from technology, where I invest most of my money.
I could see myself buying the shares in the next few months.
