The Dr Martens (LSE:DOCS) share price has been on thin ice this year, down by 26% amid a storm of economic pressures.
The British footwear and accessories brand has been through a tough patch. In the past 12 months, the company has issued four profit warnings, witnessing its margins narrow from 20% in 2021 to 13% in 2022.
Meanwhile, its fiscal 2023 pre-tax profit also slipped, landing 10% below market expectations.
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It appears the business has been walking a tightrope, but is it about to regain its balance?
Taking a step in the right direction
Despite the downturn in share price, Dr Martens is making strategic moves that could indicate an upward trend.
The company announced that it’s to buy back up to £50m in shares, potentially adding value for the remaining shareholders.
And even with its ongoing problems, revenue has been on an upward trajectory, growing year on year since 2018 and hitting £1bn in 2022.
That solid growth record can be seen in the graph below. It’s also clear that, although margins contracted in 2022 compared with 2021, they remained on an upward trend over a five-year period.
Data source: TradingView
Moreover, the firm has a solid price-to-earnings (P/E) ratio of 11 and offers a generous 4.11% dividend yield. These factors combined hint at a company that’s stepping in the right direction.
Putting the boot in for the long haul
While the near-term outlook may seem daunting, investors shouldn’t overlook the long-term growth prospects that Dr Martens has.
Analysts at Bank of America Global Research note that the group’s reinvestment into the business could reduce operational risks, while the brand’s popularity continues to improve.
The FTSE 250 company expects mid-to-high single-digit revenue growth for fiscal 2024, and predicts high single-digit revenue growth for fiscal 2025.
Furthermore, easing inflationary pressures could help boost margins going forward. All these factors suggest that Dr Martens might be lacing up for a long-term growth story.
The past 12 months have been a bumpy road for it, and the firm has tripped a few times. Still, its recent strategic moves and long-term projections leave me feeling bullish on its share price.
In addition, the brand’s wide appeal shouldn’t be underestimated. Since the first boot was made in 1960, the company has built a global empire.
Now active in 60 countries, it makes a convincing argument that it really has “transcended youth and subcultures“. Unlike the Mohawk hairstyle or the parachute pants of the 1980s, Dr Martens hasn’t faded. The business seems to be as strong and durable as the footwear it sells.
This may indeed be a unique opportunity to buy into the brand at a discount, given the potential for a strong recovery.
I plan to open a small position when I next have some spare cash to invest.
