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I have been adding penny stocks to my portfolio in recent months. The reason is that the FTSE AIM All-Share the index is down 34% since September 2021. I think this presents me with buying opportunities. And despite the risks involved, I am ready to invest in this promising penny stock.
A trendy niche
soothe (LSE: SOS) is a British womenswear designer and retailer. The online firm sells its own branded products that are designed in-house. He describes his clients as “style-conscious women who have graduated from price-based alternatives“.
That is, women who have gone beyond the fast fashion provided by people like boohoo Y ASOS. The company believes this demographic is underserved. Its strong recent financial results seem to justify that belief, as the fashion retailer enjoyed a record quarter through the end of December.
Revenue increased 30% year-over-year to £11.6m. The company experienced growth across all product categories, with knitwear, formal tailoring, coats and partywear performing exceptionally well during the winter season.
This strong business period also marked a fifth consecutive quarter of profitability for the business. It expects full-year revenue of £42.8m, with a pre-tax profit of £2m.
On the balance sheet, the company has net cash of £4.6 million.
Fashion Expert Founders
Various UK celebrities are regularly seen wearing Sosandar’s clothing. These include television presenters Holly Willoughby and Fearne Cotton, as well as soap opera actresses. Coronation Street.
Much 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 director of publications, respectively, of To watch magazine, which was a leading UK celebrity and women’s fashion publication.
They left the magazine to form Sosandar in 2016, serving as co-CEOs. Needless to say, they both have an attuned knowledge of what fashion styles resonate with their clients. The brand has established a loyal and growing customer base, along with a very strong following on social media.
sainsburys association
Sosandar’s last quarter also set a new sales record through external partners. The retailer has existing partnerships with the likes of John Lewis, marks and spencerThe Very Group and Next.
And the company recently announced that it has signed an agreement with the supermarket giant Sainsbury’s. This will see it sell a selection of clothing online, before moving into select Sainsbury’s stores later this year. Importantly, this gives Sosandar a presence in physical stores for the first time.
All these positive news have pushed the share price up 18% since the beginning of the year. Yet over a year, the stock is actually down 13%.
At 23 pence a share, Sosandar now has a market capitalization of £52m. Based on expected earnings to 2023, the stock has a forward P/E ratio of 31. I don’t think that’s a surprising multiple for a fast-growing brand.
It is not without risk, of course. The macroeconomic environment remains challenging for all fashion retailers. Sales could be affected during a recession.
However, in the longer term, I see no reason why this brand can’t grow beyond its core market in the UK and expand abroad. Overall, I am encouraged enough to start a small position in this penny stock over the next few days.
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