The Motley Fool

Is the Ted Baker share price finally cheap enough to buy?

Ted Baker (LSE: TED) was one of Friday morning’s big early fallers, as we await news of the troubled fashion retailer’s Christmas trading period.

The fall came as fellow struggler Superdry suffered a share price crash after revealing that full-year profits could be wiped out by disastrous festive sales, and the contagion seems to have spread. Superdry has discovered that demand for full-priced products is very weak, on a high street awash with promotional deals, and continued low-margin trading could hit Ted Baker’s recovery.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

A series of profit warnings, an overstatement of stock value, and the departure of founder Ray Kelvin from the helm all kicked in to help push the  Ted Baker share price down by 87% over the past two years. It’s interesting that Superdry’s problems also stemmed from the exit of its founder, Julian Dunkerton, though in that case his return doesn’t seem to have made a great deal of difference… yet.

But with Ted Baker’s share price routed, surely there’s some price at which the stock is a bargain?

Well, in my book, today’s level of around 390p is not it. While the share price has collapsed, earnings are expected to crumble along with it, and the big drop in EPS forecast for the year to January 31 would put the shares on a P/E of 11. To me, that’s nowhere near low enough to cover the risk and provide any kind of safety margin — especially as there’s no sustained earnings recovery on the horizon yet, not before 2023 at the earliest, according to analyst consensus.

Buy this instead?

Another potential recovery stock I’m avoiding in 2020 is Metro Bank (LSE: MTRO), whose share price has managed the astonishing feat of falling further than Sirius Minerals over the past 12 months — Sirius is down 77%, but Metro has that licked with an 89% collapse.

Metro’s problems have been legion, starting with a serious risk rating miscalculation affecting a lot of its loans, which even inspired the Financial Conduct Authority to take a look. The list of woes includes the need for capital raising, difficulties in getting a bond offering taken up, and the position of founder and Chairman Vernon Hill.

Hill held on as long as he could, but his days as Chairman were clearly numbered, and by mid-December his status as a non-executive director was terminated too.

CEO Craig Donaldson also headed out the door in December, to be replaced by Chief Transformation Officer Dan Frumkin, who had only taken that role in September (and what kind of bank should need a Chief Transformation Officer?)

It all reads like a catalogue of incompetence, and at the first sign of trouble, customers started deserting the ‘challenger’ bank (an appellation that used to sound exciting and profitable). And a bank that can’t retain customers, can’t get its accounting right, can’t offload its bonds… well, that barely seems like a bank worth investing in to me.

Again, is there a share price level that would tempt me to invest in Metro Bank? Unfortunately, no.

A top stock with enormous growth potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business.

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has been helping it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 alone it returned a whopping £151.1m to shareholders in dividends and buybacks!

And here’s the really exciting part…

We think now could be the perfect time for you to start building your own stake in this exceptional business—especially given the two potentially lucrative expansion opportunities on the horizon that our analyst has highlighted.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Stock… free of charge!

Alan Oscroft owns shares of Sirius Minerals. 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.