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Actions in FTSE 250 boot maker dr martens (LSE:DOCS) have fallen 83% since the company joined the stock market in 2021. But the shares have been showing signs of life recently.
The share price rose sharply at the end of last year. And with a new chief executive taking over this month, could 2025 be a recovery year for the business?
the problems
Dr Martens has been dealing with two problems. The first is weak demand in the United States and the second is the difficulties in moving from selling through retailers to selling directly to consumers.
The objective has been to increase margins, but the only thing that has been increasing are the company's costs. Inventory management has been a challenge and this is reflected in the company's balance sheet.
These difficulties are familiar. Nike has been having the same problems, which is why its share price has fallen since the beginning of 2022.
Dr. Martens, however, has been working to address both issues. While it can't do much about the consumer environment, it has been revamping its marketing strategy to drive demand.
The company has also been reducing its purchases to reduce its inventory levels. And as a result, its net debt has fallen 27% in the last 12 months.
In short, positive signs are beginning to appear in the company's plans to revitalize itself. As a result, stocks have started to rise, but is this a false dawn or is there more to come in 2025?
Perspective
In terms of forecasting a recovery in Dr Martens shares in 2025, there are two questions. The first is what the company is going to do and the second is how investors will react to this.
While the company has done a good job with its balance sheet and costs, it is losing money. And while the dividend has been cut, even this could prove unsustainable unless things change.
The problem is sales – the last update reported that revenue fell 18% and this will have to change for the stock to be a viable investment. But 2025 could be a challenging year on this front.
The threat of tariffs on imported goods in the United States seems like the kind of thing that could curb consumer demand. And that will make stopping the decline in sales a challenge.
Therefore, I am wary of the outlook for Dr Martens shares in 2025. It is difficult to predict exactly how investors will react to the company's news, but the business has a long way to go.
The longer the company's problems take to resolve, the more the stock looks like a value trap. And to some extent, this is beyond the company's reach.
A recovery in 2025?
Sometimes the best time to buy stocks can be when everything seems to be going wrong. Any sign of improvement can send the stock price higher.
However, if signs of recovery do not appear, a stock can become a value trap. Even if it eventually recovers, the cost of waiting makes it a bad investment.
Next up for Dr Martens is a recovery in sales. But without a solid reason to think this is imminent, I won't be backing this one for a 2025 return.
