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I woke up this morning to a news report flashing on my phone that read ‘Superdry stock crashes’ as poor Christmas could wipe out profits.
This is precisely what investors don’t want. If the overall market crashes then fair enough. There’s not much any of us could have done to avoid it. But when an individual stock crashes, and it’s in your portfolio, it can make you sick to your stomach as you watch a big chunk of your yearly profits disappear.
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But I have stayed well away from this drama. In fact, I’ve been avoiding [SDRY] Superdry plc now for the last few years.
For starters, whilst the company have been seeing decent revenue growth year on year over the last 5 years there have been some concerns that have kept me away from investing.
Cost of Sales for the business have been rising. However, not only have they been rising, but they have been rising at a faster rate than the incoming revenue.
In addition to this, company expenses have also been rising faster than the revenue. Making up 79% of the gross profit in 2013 and by 2018 rising to 85%.
The result of all this is falling net earnings. Over the last 3 years, net earnings have fallen from 7.9% in 2016, to 7.8% in 2017 and 7.1% in 2018.
Whilst they’ve never looked like a business in real serious trouble, the trends and patterns over the last 3 years all point downwards. The exact opposite of the trends and patterns that i’m interested in.
In line with the financials, the share price has been plummeting since January 2018 where it sat at £22.00 a share. Anyone who ignored the warning signs in the financials and jumped on board here will be licking their wounds right now as the price has fallen to just £4.00 a share.
In fairness, the media are far behind this story. The “crash” as they report it is nothing compared to the overall drop Superdry have seen in recent years. But a 15% drop in value will always catch the eye, and with a profit warning now being released by the company after poor Christmas sales, this will likely be the 4th year of decline in a row.
It’s no wonder there’s little demand for the stock.
Members of my Gold & Platinum membership package get a weekly e-magazine covering all the stocks i’ve analysed, the good and bad. Superdry plc have been sitting in my FAILED TO QUALIFY section for quite some time.