The Motley Fool

Why I’d buy this top quality growth stock over this turnaround contender

Image source: Getty Images.

Shares in fashion and lifestyle brand Ted Baker (LSE: TED) fell almost 8% in early trading this morning after the company said unseasonal weather across Europe and the US had negatively impacted trading for the early part of spring/summer. It added that conditions were likely to “remain challenging” across its global markets.   

While the stock market will always be forward looking, I can’t help but think that this feels like yet another overreaction from investors, particularly when the numbers contained in today’s latest set of full-year results are considered.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

In the year to 27 January, group revenue rose 9.6% in constant currency to £591.7m. Once exceptional items are stripped out, pre-tax profit climbed 12.3% to £68.8m.

Broken down, retail sales in the UK and Europe rose 6.4% to a little over £301m, once foreign exchange fluctuations were taken into account. Sales in US and Canada fared even better with the company generating £120.1m — a rise of 12.4%. The biggest (percentage) growth, however, was seen in the company’s online business. E-commerce sales soared 39.8% to £101.1m.  

Given the above, it’s understandable that the total dividend was hiked by 12.1% (to 60.1p), continuing the trend for double-digit increases seen in recent years. While the majority of Ted Baker’s current owners are unlikely to be too concerned with generating income at the current time, this kind of confidence on the part of management shouldn’t be dismissed.

With new stores and/or concessions planned in Europe, US, Mexico and Japan, not to mention ongoing investment in its e-commerce offering, 2018 looks like being another busy year for the £1.3bn-cap. Although no company in this industry can afford to take anything for granted, it’s interesting to note that it is already predicting “high single-digit sales growth” at its wholesale business. So long as retail sales remain healthy, I can’t see investors abandoning the stock for long.

All told, I’m tempted to think that today’s dip provides a decent entry point for those who already had the stock on their watchlists but were concerned over the company’s relatively high valuation. 

Return to profits

Up until very recently, the performance of shares in fellow fashion retailer French Connection (LSE: FCCN) was pretty uninspiring. All that changed earlier in March following the release its latest full-year results.

In the 12 months to the end of January, the company saw group revenues rise 0.5% to £154m. Although retail revenue dipped 5.5% (or -6% at constant currency) to £83.1m, sales at its wholesale business climbed 8.6% to £70.9m. Elsewhere, e-commerce revenue grew by 3.1%.

As a result of its “ongoing portfolio rationalisation“, chairman and CEO Stephen Marks said the business had made “considerable progress” over the last year and was now “very close” to becoming profitable again. The company revealed an underlying operating loss of £600,000 — an improvement of £3.7m in the previous year. Cue a 75% rise in the share price.

Can French Connection continue this form? With spring orders apparently “well ahead of this time last year“, it’s not out of the question. Following last year’s unsolicited approach from a “a third party in the US“, there may even be another bid for the company at some point. 

Nevertheless, I’m comfortable sitting on the sidelines for now, given the uphill challenges still facing the company, the lack of dividends and ongoing concerns over the health of the UK retail market. 

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Ted Baker plc. 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.