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I believe this beaten down FTSE 250 stock is due for a comeback

Fashion retailer Superdry (LSE: SDRY) hasn’t exactly been making waves in the equity markets. Through January, it has traded at a price that’s 70% lower than its 12-month high of 1,747.3p. The broader market crash of recent months is one of the reasons for this. But it’s worth bearing in mind that the FTSE 250 is presently trading only 14% lower over that period, a far more muted difference.

Even considering that share prices of consumer stocks can be sensitive to market meltdowns, the entire Superdry story is still not explained. When I compared it, for instance, to another FTSE 250 retailer Ted Baker (which has had seen quite the crash of its own), I found that the latter still managed to contain its fall.

So what exactly is going here? And more importantly, does it deserve the hammering it has received?

Poor earnings trigger decline

The half-year update released in December triggered the crash in share price, which was down by over 38% from the previous day. A halving in pre-tax profits from the corresponding period of the year before and pessimistic forward guidance contributed to this decline. The company said that there was “still considerable uncertainty in terms of the weather outlook, the changing shape of consumer behaviour in the peak trading period and the impact of wider economic and political uncertainty.” In other words, not only is the present disappointing, there is little to look forward to in the immediate future as well.

Promising past and future

However, just one gloomy forward guidance figure is no prediction for the long term. Viewed over a longer time frame, I like the fact that the company has been a solid performer. It saw revenue doubling between 2014 and 2018. The profit before tax trends were less robust, but certainly not a complete washout. The company has seen an increase in profits in two of the last four years.

Further, as I keep reiterating at every opportunity, this is the time to look at companies with a multi-market focus. And operation that takes in 157 geographies is a significant plus point in this case, as is the fact that only around 12% of the company’s wholesale revenues are presently generated from the UK and Ireland. Europe is its biggest market in the category, accounting for a lion’s share of the revenues.

I am keen to follow how Superdry’s e-commerce business grows, since it’s increasingly the future of retail. To this extent, it is good to see that the rise in overall retail revenues in the first half was on the back of e-commerce sales, even if store sales actually shrank.

The upshot here is that while the company’s clearly facing some tough time, it has the capacity to overcome them. The company has more going for it than not and I believe this share is indeed due for a bounce-back, signs of which have already been becoming visible in the share price inching up over the past month.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Superdry and Ted Baker. 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.