By definition, the FTSE 250 index is home to future FTSE 100 stocks. Just like the English Football League Championship is home to future Premier League clubs. However, stocks and clubs can also travel in the other direction.
Investing in the right mid-cap share early enough can produce market-thumping returns.
Lost its footing
However, digging through the FTSE 250, I see a handful of names that I’m uncertain about long term. One of them is Dr Martens (LSE:DOCS).
Shares of the bootmaker have been doing well recently, rising 20% in just the past month. However, they’ve still lost half their value since the start of 2023, and more than three-quarters since listing in 2021.
The company has issued multiple profit warnings in recent years, with weak demand and warehousing problems in the US knocking investor confidence in the brand’s prospects. Profits have slumped alarmingly.
Meanwhile, Dr Martens’ fashion appeal has faded, at least for its iconic chunky boots. You don’t have to dig deep on Reddit to find users complaining about poor quality and overpriced products. Back in the day, a pair of Docs could last for life. Not so much nowadays.
Firmer ground
However, there are green shoots of recovery emerging at the company. Indeed, CEO Ije Nwokorie has even predicted a return to growth in the current financial year (FY26).
In June, he said: “Our single focus in FY25 was to bring stability back to Dr Martens. We have achieved this by returning our direct-to-consumer channel in the Americas back to growth, resetting our marketing approach to focus relentlessly on our products, delivering cost savings, and significantly strengthening our balance sheet.”
The City is currently buying into the turnaround, with revenue forecast to rise from £788m last year to £850m by FY27. Crucially, earnings per share are expected to increase by around 40% over this time, putting the stock on a forward price-to-earnings (P/E) multiple of 16.5.
If the company can keep building from there, then I think a multiyear turnaround in the share price is possible.
Brand messaging
Dr Martens says it aspires to be the “world’s most-desired premium footwear brand“. It wants to be “democratic”, while staying true to its heritage by staying connected to youth culture and subcultural roots.
A cynic might say that the brand wants to have its cake and eat it. A global premium footwear brand doesn’t sound rebellious or subcultural to me.
At a recent punk festival in Blackpool, I asked some old-school punks about the brand. All thought it went ‘woke’ years ago, embarrassed by its historical associations with skinheads, who weren’t exactly known for being politically correct.
Yet, I noted that many still wore Docs out of nostalgia, while some younger people were wearing them. So perhaps the company is doing as well as it can to bridge the generations.
I suspect Asia is where the brand’s future growth might lie. Japan and South Korea are driven by youth fashion culture. Rebellious self-expression is arguably more mainstream there. Symbolically, there are now more Dr Martens stores in Japan (46) than the UK (34).
The stock could be a strong turnaround candidate, though US tariffs are a risk, with most of Dr Martens’ manufacturing done in Asia.
Weighing things up, there’s too much uncertainty for me to invest long term here.
