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Investing in stocks that have fallen more than 80% can seem daunting. After all, some companies' stock prices fall for good reason. However, I think this FTSE 250 The business could be an opportunity.
Most people know dr martens (LSE: DOCS) good. It has become iconic in London and the brand has spread throughout the world thanks to its fashion footwear.
The company has had rich cultural significance since the 1960s. It also began a successful turnaround that culminated in 2010. But is the stock really worth owning today?
Doc Martens in 2024
This year, management is focused on driving sustainable profitability and growth, with a focus on shareholder value.
It currently has a strategy called DOCS, focused on direct customer sales, operational excellence, customer connections, and supporting business-to-business partnerships.
The company now operates in three main regions: Europe, Middle East and Africa (EMEA); the Americas; and Asia Pacific (APAC).
It sells products from various segments, including Originals, Fusion, Kids and Casual ranges.
A closer look at finances
The company has reported growing revenue and earnings since its initial public offering (IPO) in 2021. However, there has been significant volatility in results, particularly in its earnings per share:
While the chart above shows a turbulent financial picture for Dr. Martens in recent years, overall the company's growth is good.
After all, the company's three-year average annual revenue growth rate is more than 14%.
Furthermore, the company's price-to-earnings (P/E) ratio is around eight, which is especially cheap compared to previous prices. It is also strong for its sector, considering an industry median of around 19.
While the above points seem relatively promising to me, the organization's balance sheet presents some reasons for concern.
In its last annual report in March, it had debt of £446m and just £158m cash on its books.
While that's not terrible, it has gotten worse and, taking the last 12 month period into account, it has £530m in debt and £46m in cash. If the company is facing financial difficulties, it may need to raise more funds to pay its debts.
Other risks I'm considering
On January 26, 2024, Dr. Marten's share price had fallen 39% in one year. While the company faced a significant drop in revenue during the period, it maintained its business expectations.
To me, that means such a sharp drop in the share price was slightly unjustified. However, it highlights a risk of volatility for Dr. Marten shareholders.
Furthermore, while inflation and interest rates are expected to decline soon, there is no guarantee of this, and any broader economic setback could help reduce consumer spending for some time. Therefore, I think the stock could see slower or even negative growth in the near future.
It's on my watch list
I'm taking my time before adding these value stocks to my portfolio.
As I learned from Warren Buffett: I don't need to make many big investments throughout my life to end up rich. It's the quality of the ones I choose that really matters. Deciding that often takes time.
If I invest, I will give it at least five years to start seeing the investment returns I would like. That's not something I care about, as I like to buy investments with the intention of holding them for at least a decade.
