Could Now Be The Time To Buy Supergroup PLC?

Clothing powerhouse SuperGroup (LSE: SGP) has suffered extreme price weakness in recent months, conceding 40% from late-March’s three-year peak above 1,740p per share and exacerbated by a disappointing fourth-quarter trading update last month.

But in my opinion, current weakness could present a prime opportunity for those seeking to cash in on a bona-fide design superstar.

A fashionable growth pick

City analysts expect the fashion house to punch growth of 19% for the year concluding April 2014, results for which are due on Thursday, SupergroupJuly 10. And although earnings expansion is expected to slow through the next two years, growth of 14% and 12% for fiscal 2015 and 2016 should not be sniffed at.

These projections mean that SuperGroup now changes hands on a P/E multiple of 16.2 for the current year — just above the benchmark of 15 which is generally classified as reasonable value — and which ducks to 14.4 for 2016.

And I believe that investors should pay particular attention to the company’s price to earnings to growth (PEG) readouts for this period, which underline SuperGroup’s fine value relative to predicted earnings increases. Indeed, a reading of 1.2 through to the end of next year sits just above the threshold of 1 which highlights stellar bang for your buck.

Income prospects poised to take off

Currently the casualwear specialists fail to produce a dividend, but broker consensus suggests that this could be due to change from this year onwards — analysts expect the firm to chuck out a maiden dividend of 7.2p per share this year before turbocharging the payment to 13.2p in 2016.

Although these figures produce miserly dividend yields — readings come in at 0.8% and 1.4% for this year and next, comfortably behind the 3.2% FTSE 100 average — I believe that the likelihood of tremendous earnings growth should keep blasting shareholder payouts higher beyond next year.

European crusade boosts earnings profile

SuperGroup enhanced its European expansion last week through the acquisition of Scandinavian distributor SMAC Group, giving the firm rights to trade the extremely popular Superdry brand in Denmark, Sweden and Norway. The move will allow it to build the number of stores across the region and improve margins on the wholesale side.

SuperGroup has already purchased its German and Spanish partners within the past 12 months, following on from the takeover of its French and Benalux associates in 2011. The stage is now set for the business to aggressively ramp up its floorspace across Western Europe, and with plans to also boost its online operations, I believe that the firm should continue to enjoy prolonged earnings expansion.

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> Royston does not own shares in SuperGroup.