Fashion

The small position I started in Sosandar (LSE: SOS) shares two months ago is down 12%, but I’m ready to top it up soon.

This company is one of the fastest growing women’s fashion brands in the UK. Its revenue rose 30% year on year to £11.6m in the three months to 31 December.

There was growth across all its sales channels and, importantly, it was also the group’s fifth consecutive quarter of profitability.

Following this, the retailer announced a deal with Sainsbury’s to sell its clothes through the supermarket’s website as well as being stocked in some of its stores.

Sosandar already has existing online partnerships with Marks & Spencer, John Lewis, and Next. The sales mix is broadly split between its own website and third-party channels.

While the retailer’s customers are relatively affluent, they’re probably still not immune to the continuing cost-of-living crisis. So sales growth could be impacted if inflation remains elevated. And small fashion businesses have a lot of hurdles to jump before they turn into big fashion businesses.

However, I think a recent £4.5m fundraise by the company should enable it to bolster its product range and pursue additional growth initiatives. The opportunity to grow overseas, for example, looks sizeable to me.

Overall, I think the shares are attractively priced at 23p. The market cap is currently just £58m.

Construction

Steppe Cement (LSE:STCM) is a leading low-cost cement manufacturer in Kazakhstan, where it has been operating since the 1950s.

Whilst cement isn’t an investment to get the heart racing, it’s still indispensable for modern construction. This makes it appealing to me.

The main competitive advantage this firm enjoys is the strategic location of its plant, in a former Soviet Union coal mining hub. This area has well-developed infrastructure that enables rapid and reliable delivery to its customers.

Its annual production capacity has steadily increased to 2m tonnes over the last few years. And the firm grew its net income from $1.28m in 2017 to $17.1m in 2021.

Yet, while it achieved record revenue growth last year, profits are expected to fall when the firm reports its audited full-year results in May. The reason for this was that production costs were higher as inflation soared 20% last year in Kazakhstan.

However, I expect earnings to grow steadily again once inflation normalises.

The stock carries a huge 11.7% dividend yield, though the payout could be cut as it’s only covered once by earnings. A reduction could cause short-term volatility in the share price.

Still, I like the long-term growth story here. Kazakhstan is the richest country in Central Asia, with vast natural resources. And according to the World Bank, its GDP growth in 2023-24 will accelerate to between 3.5% and 4%.

More specifically, the government has committed billions to modernising the country’s roads, railways, ports, airports, and IT infrastructure. This should keep cement demand robust and underpin the company’s growth.

Meanwhile, with a price-to-earnings (P/E) ratio of just 5.5, the stock looks dirt-cheap. If I had spare cash to invest, I’d buy some shares today.

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1. Jet2

Like the rest of the travel industry, shares of Jet2 (LSE:JET2) have been performing well recently. The stock is up 30% so far this year and for good reason too. Its most recent trading update was a momentous occasion. That’s because it’s the first FTSE-listed airline to see its load factor finally surpass pre-pandemic levels.

Apart from that though, the budget airline also reported strong sales of packaged holidays and forward bookings. Most importantly, the AIM stalwart shared that it’s now anticipating profits to beat analysts’ estimates of £317m. The firm is now forecasting profit before tax to come in between £370m and £385m. Pair that with an immaculate balance sheet and Jet2 shares certainly look lucrative for my portfolio.

To make things sweeter, the low-cost carrier has very favourable valuation multiples as well. As such, it’s no surprise to see Barclays rating the stock a ‘buy’ with a price target of £13.50. While this only presents a 10% upside from its current levels, I believe the potential for the AIM share is much higher. Therefore, buying at these levels would still give me a good chance at beating the FTSE 100, which averages a 7% return annually.

2. On the Beach

On the Beach (LSE:OTB) has also performed well. Shares of the online beach holidays retailer have shot up by an impressive 85% from their October low.

The AIM firm is carrying that strong momentum into 2023 after its latest Q1 update, which saw its share price rise by another 10%. The business recorded higher bookings in what’s usually its quietest quarter of the year, along with strong forward bookings and higher total transactional value (TTV).

What’s more, the group saw growth in its premium, long-haul, and B2B offerings, which tend to be higher-margin products. As a result, I’m expecting growth in these areas to lead to margin expansion, which should bring down its elevated multiples.

Either way, I believe the travel agency’s stock has the potential to beat the market given its strong balance sheet and travel demand. After all, Numis rates it a ‘buy’ with a price target of £2.60, presenting a 50% upside from its current levels.

3. Sosander

Another AIM share I’m eyeing is fashion house Sosander (LSE:SOS). The clothes company’s shares are already up 30% this year thanks to its mega deal with Sainsbury’s.

The fashion brand recently penned an agreement with the second-largest retailer in the UK, entering a wholesale agreement to sell its products. Although the initial rollout will be slow, the upside potential is certainly there to be realised. This is especially the case once its clothes start making it onto the racks of selected stores later this year. Higher sales figures would then bring down the shares’ current elevated multiples to more reasonable levels.

Combine the above with its strong financials, and it’s no wonder Sosander shares have an average price target of 35p. With a 32% upside, it’s certainly got the potential to beat the market as well.

The post AIM shares: 3 stocks to beat the market in 2023 appeared first on The Motley Fool UK.

A fashionable niche

Sosandar (LSE: SOS) is a British designer and retailer of womenswear. The online firm sells its own branded products that are designed in-house. It describes its customers as “style-conscious women who have graduated from price-led alternatives“.

That is, women who have moved beyond the fast fashion provided by the likes of boohoo and ASOS. The company believes this demographic is underserved. Its recent strong financial results appear to justify that belief, as the fashion retailer enjoyed a record quarter to the end of December.

Revenue increased 30% year on year to £11.6m. The company saw growth in every single product category, with knitwear, formal tailoring, coats and partywear performing exceptionally well throughout the winter season.

This solid trading period also marked a fifth straight quarter of profitability for the business. It expects full-year revenue of £42.8m, with pre-tax profit of £2m.

On the balance sheet, the company has net cash of £4.6m.

Fashion savvy founders

Various UK celebrities are regularly seen wearing Sosandar’s clothes. These include TV presenters Holly Willoughby and Fearne Cotton, as well as actresses from soap opera Coronation Street.

A large part of the brand’s growing popularity can be explained by the backgrounds of its co-founders Alison Hall and Julie Lavington. They were the editor and publishing director respectively of Look magazine, which was a leading UK women’s fashion and celebrity publication.

They left the magazine to form Sosandar in 2016 and serve as co-CEOs. Needless to say, they both have an attuned knowledge of which fashion styles resonate with their customers. The brand has established a loyal and growing customer base, along with a very strong social media following.

Sainsbury’s partnership

Sosandar’s latest quarter also set a new record for sales via third-party partners. The retailer has existing partnerships with the likes of John Lewis, Marks and Spencer, The Very Group and Next.

And the company recently announced it has signed a deal with supermarket giant Sainsbury’s. This will see it sell a curated selection of clothes online, before moving to selected Sainsbury’s stores later this year. Importantly, this gives Sosandar an phyiscal stores presence for the first time.

All this positive news has sent the share price up 18% since the start of the year. However, over one year the stock is actually down 13%.

At 23p per share, Sosandar now sports a market cap of £52m. Based on 2023’s forecast earnings, the stock has a forward price-to-earnings (P/E) ratio of 31. I don’t think that’s an eye-watering multiple for a fast-growing brand.

It’s not without risk, of course. The macro-economic environment remains challenging for all fashion retailers. Sales could take a hit during a recession.

Longer term though, I see no reason why this brand can’t grow beyond its core UK market and expand overseas. Overall, I’m encouraged enough to start a small position in this penny stock in the coming days.

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Strutting higher

Shares of online womenswear brand Sosandar (LSE: SOS) are up 25% since the turn of the year. However, over a one-year period, the stock is down 8%. It’s currently trading at 25p per share.

Why the recent uptick in investor enthusiasm for the stock?

Well, firstly, the retailer released an upbeat Christmas trading update this month. In the third quarter to 31 December 2022, year-on-year revenue was up 30% to £11.6m. This was a new record and represents a fifth consecutive quarter of profitability.

Across the period, every single product category experienced growth. And its existing online partnerships with John Lewis, Marks & Spencer, The Very Group, Next, and JD Williams also delivered a record quarter for third-party sales.

Then this week, the Cheshire-based company announced it had secured a partnership with supermarket giant Sainsbury’s. Significantly, this deal will see Sosandar expand to in-store retail for the first time, giving it an omnichannel presence.

For the year ending 31 March 2023, management expects revenue of £42.8m, with pre-tax profit of £2.0m. With a market cap of £55m, this gives the stock a price-to-sales (P/S) ratio of 1.4. For a fast-growing young firm, that valuation looks appealing to me.

Plus, the company has £4.2m of cash and no real debt on the balance sheet.

A nice little niche

I like that Sosandar is not trying to be all things to all people. It has created a nice little niche for itself catering to style-conscious women who have graduated from fast fashion.

It sells fashionable clothes at affordable prices, but not as cheaply as boohoo or ASOS. This should enable the company to generate and sustain a healthy profit margin over time.

I also like that Sosandar’s co-CEOs, Alison Hall and Julie Lavington, are also the co-founders. They were the editor and publishing director respectively of fashion and celebrity magazine Look before launching Sosandar in 2016. So they have an intimate knowledge of their customer base.

Of course, there’s a risk of a major slowdown in consumer spending during a recession. Still, with the firm now entering a profitable stage of growth, I’m going to open a position in the stock.

Brave new meat

The second AIM stock I’m buying is venture capital firm Agronomics (LSE: ANIC). It runs a portfolio of over 20 start-ups involved in the fast-emerging field of cellular agriculture. This involves growing meat directly from animal cells rather than rearing and slaughtering animals.

Once the realm of science fiction, this is now becoming a reality. Agronomics thinks that cultivated meat could reach 35% of the global meat market by 2040. Meanwhile, McKinsey estimates this market could be worth $25bn by 2030.

At 13p and with a market cap of just £129m, this stock is often very volatile. However, it’s down 63% from its all-time high of 35p reached in May 2021. I already owns shares of Agronomics, and I’m preparing to buy more.

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The case for investing in this penny stock

When looking at a small-cap penny stock one of the things many private investors want to see is management holdings, as well as (of course) the business’s financial performance. On this front, I think Sosandar measures up well. Alison Hall, the co-founder and current joint CEO, has around 5% of the shares. On that basis management incentives are well aligned with shareholders. She’ll presumably want the share price to go up!

Talking of investors, the company has a number of very reputable institutional investors among its biggest holders, including Octopus, Amati and Schroders. Another reassuring sign I think. 

Sosandar said last month that revenue had soared in the three months ended 31 December, leading the group to a record quarterly performance. Revenues were up 122% year-on-year in the third quarter at £8.85m. This will move it towards profitability, which I think will make it seem like a much better investment.

Analysts at Singers see potential for Sosandar to achieve £75m-£100m revenues and a more than 10% EBITDA margin, within the next couple of years, indicating the potential for massively improved financial performance in the coming years.

The retailer could also expand overseas. Management has spoken of a “massive opportunity” to expand overseas via third-parties. Again, this could really boost organic growth and help lift the company into profitability.

Overall, to answer my earlier question, I think the phenomenal revenue growth could continue and increasing economies of scale and repeat custom could make this a much higher-quality, profitable business. In turn, I’d hope to see that translate into strong share price growth.

The bear case

There are still issues though. The company right now is loss-making. That will put off some investors. Fashion is also notoriously risky as new products are launched every season and could fail to spark. The biggest risk is the shares aren’t cheap, especially because it’s an unprofitable business. Furthermore, if something goes wrong, and revenue growth stops, the share price would very likely plummet.

Weighing the scales

The rapid growth of e-commerce in recent years hasn’t helped it move into profit just yet. But the business is moving in the right direction and is relatively young, while the top line is growing fast. 

As a penny stock with a £60m market cap, there’s a lot of room for Sosandar to become much bigger than it currently is. It operates in a massive market with lots of potential customers, so while there is competition, there is also a huge opportunity. If I weigh up the risks versus the rewards Sosandar looks to be heavily weighted towards future share price growth as and when it becomes profitable. For that reason, I’m considering adding the shares to my portfolio. I think Sosandar might be a bit of a hidden gem.  

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Meteoric rise

A lot has been written about the death of the high street shopping experience in recent years. Many established retailers have fallen by the wayside in recent times. The pandemic has exacerbated this and consumers find themselves clothes shopping online more than ever. The rise of online-only fast fashion firms has taken the world by storm. This has been supported by technology evolving rapidly too.

Sosander was established in 2016 and joined the FTSE AIM just a year later. It is a women’s fast fashion brand selling clothes and accessories for a multitude of occasions and day to day wear too. Impressively, it has lucrative partnerships with established firms such as Next and Marks and Spencer.

Last year was an impressive one for Sosander. The share price rose 82% in 2021 from 17p per share to current levels of 31p.

Why I like Sosander

My bullish stance towards Sosander stems from two main aspects. These are macroeconomic factors and internal company factors. I believe both of these could favour its growth trajectory and make it one of the most exciting penny stocks on the market for 2022 and beyond.

From a macroeconomic perspective, online fast-fashion is a booming market that will only continue to grow. The impact of the pandemic has been largely positive on a burgeoning industry. Many other online fashion firms have reported record customer numbers and sales. This new way of life could continue and the pandemic shows no signs of disappearing too. Firms like Sosander will benefit in my opinion.

From an internal company perspective, I like Sosander due to its company structure. It is a relatively small firm, which means a lot of insiders own stock. I am usually buoyed when insiders own significant amounts of stock. This tells me their interests are aligned as they want a return on investment on their own money and can make it happen by helping the company succeed. In addition to this, who better than insiders to know whether a firm is on an upward trajectory. I keep an eye out for insiders buying shares.

A positive trading update released today by Sosander for the three months ending 31 December made for excellent reading too. Revenue was up 122% compared to the same period last year. Active customers and average orders also increased compared to the same period last year.

Penny stocks have risks too

Sosander is a relatively small firm in a big industry. One concern is that it could get out muscled by larger, more established competition. Secondly, when small companies try to grow rapidly, there are often growing pains. These can be such things as technological and infrastructure related so I must be wary of these issues. Both risks can impact performance and any return on my investment if I bought shares.

Overall I believe Sosander is heading for an excellent 2022 and beyond. It is an exciting penny stock that had a breakout year in 2021. I am buoyed by its progress to date including its excellent strategic partnerships as well as recent trading. Favourable market conditions should help too. I would add shares to my portfolio at current levels.

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Fast fashion multi-bagger

The penny stock in question is Sosander (LSE: SOS). Providing “a one-stop online shop for style-conscious women who have graduated from price-led alternatives”, the company also boasts brand partnerships with FTSE 100 firm Next, FTSE 250 member Marks & Spencer, and John Lewis. Just like the aforementioned Boohoo and ASOS, Sosander makes full use of data analysis to gauge which products it should prioritise and the best ways of reaching its target audience. 

Despite only being around since 2016, the company was listed on AIM only a year later. Performance since then has been somewhat erratic. For example, the share price went from 45p in September 2018 to just above 5p when the first UK lockdown was announced. However, anyone brave enough to buy this penny stock back when the chips were down will have done extremely well. Since March 2020, the valuation has climbed roughly 560%!

Based on today’s half-year numbers, I think there could be even more upside ahead.

Sales soar at this penny stock

At £12.2m, revenue rocketed no less than 184% in the six months to the end of September. To put this in perspective, that’s more than in the whole of the previous financial year. Gross profit came in at £6.9m — up more than 200% — and gross margin hit a superb 56.5%.

Other positives include the number of active customers over the six months soaring by 41% to over 191,000. This suggests that co-CEOs Ali Hall and Julie Lavington have got their marketing strategy spot on. 

Like many penny stocks, Sosander remains loss-making. However, an EBITDA (earnings before interest, tax, depreciation, and amortisation) loss of just under £1m is lower than the £1.02m seen last year. In other words, things are going in the right direction. In fact, the Wilmslow-based business revealed that it was EBITDA positive in both October and November as shoppers snapped up partywear, outerwear, and knitwear. 

No sure thing

Perhaps unsurprisingly, Sosander stated that it was trading ahead of current analyst expectations for the full year. Unfortunately, the share price is barely up as I type. I think this is most likely due to traders being caught off guard by suggestions that existing vaccines may not be all that effective against the new Covid-19 variant. On another day, the reaction might have been a lot different.

Even so, it’s worth bearing in mind that Sosander is hardly a risk-free proposition. Although the company had seen “no material impact” from supply chain disruption so far, things could easily get worse before they get better. I’m also minded to remember that, pandemic or not, the £75m cap operates in a highly competitive industry where, I imagine, brand loyalty is increasingly hard to secure.

My verdict

No one can say for sure what will happen next with Covid-19. As promising penny stocks go, however, this is definitely one I’ll be adding to my watchlist. If general market sentiment dips again over December, I may just need to make room for Sosander in my portfolio.

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