• Mon. Sep 26th, 2022

Should I buy this FTSE fashion stock after its recent impressive results?

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FTSE 250 incumbent Dr Martens (LSE:DOCS) last month posted surprising, yet impressive, full-year results. Furthermore, it outlined ambitious growth plans too. Should I buy the shares for my holdings?

FTSE fashion stock

As a quick reminder, Dr Martens is a fashion brand that specialises in footwear and accessories. It is perhaps best known for its iconic boots. As with any fashion business, trends have changed, and Dr Martens has moved with the times over the past century since its inception in 1901.

So what’s happening with Dr Martens shares currently? Well, as I write, they’re trading for 261p. At this time last year, the stock was trading for 399p, which is a 34% drop over a 12-month period.

I’m not concerned by the Dr Martens share price drop. The business listed only last year on the FTSE via an initial public offering (IPO). Management later confirmed £80.5m worth of costs attributed to the listing and this caused shares to drop. Furthermore, in recent months, many stocks have pulled back due to macroeconomic headwinds and the tragic events in Ukraine.

Risks to note

The recent macroeconomic headwinds include soaring inflation, the rising cost of raw materials, as well as the global supply chain crisis. These could all have a negative impact on Dr Martens and other FTSE stocks. Rising costs mean that profit margins could be squeezed. This in turn affects performance, returns, and investor sentiment. Supply chain issues could affect operations and sales too.

With inflation soaring, a cost-of-living crisis has emerged here in the UK, as well as issues in many other leading world economies that Dr Martens operates in. In times of austerity, premium brands may suffer if consumers turn to cheaper alternatives to conserve cash.

The bull case and my verdict

Dr Martens’ full-year results for the period ending 31 March 2022 were impressive. Sales totalled £908m, leading to a profit of £181m. This was higher than the forecast of £155m. Tellingly for me, gross margin grew by 63.7% compared to 2.8% previously. I noticed from that update that a shift in focusing on retail sales, rather than distribution, boosted the company’s balance sheet and led to this impressive performance.

As part of the trading update, Dr Martens outlined ambitious growth plans for areas where it feels there is a lot of untapped potential. This includes gaining further entry into lucrative markets such as China, the US, Germany, and Japan.

Based on Dr Martens share price, the shares currently look decent value for money on a price-to-earnings ratio of 13. Furthermore, its impressive results saw its dividend increase, which would boost my passive income stream. Its current dividend yield stands at just over 2%. This is in line with the FTSE 250 average. I am aware that dividends can be cancelled at any time, however.

Overall, I’m tempted to add Dr Martens shares to my holdings. I believe recent results were impressive and could be the start of a sustained period of growth. My only issue is if it doesn’t manage to fulfil its own lofty expectations, the shares could take a major hit. I will keep an eye on developments, however.

The post Should I buy this FTSE fashion stock after its recent impressive results? appeared first on The Motley Fool UK.

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Jabran Khan has no position in any of the shares mentioned. 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.