FTSE 250 incumbent Dr Martens (LSE: DOCS) is a name synonymous with iconic footwear. However, since the company’s initial public offering, the shares haven’t exactly set the world alight.
I’ve done some digging and reckon there’s a great opportunity to buy cheap shares with a view to long-term growth and returns. Let me explain!
Dr Martens shares continue to fall
The famous boots by Dr Martens have become something of a phenomenon navigating the changing face of fashion across decades. I’d argue they’re still popular to this day. I’ll confess I’ve owned a few pairs in the past!
However, the shares floated nearly two years ago to the day for 450p a share, and currently trade for 84p. This equates to a drop of 81%! Over a 12-month period, they’re down 45% from 154p to current levels.
I reckon a cocktail of macroeconomic and geopolitical volatility in recent times, as well as a strategic overview within the company, has caused this sharp decline in share price.
An opportunity but with risks
The review I mentioned could be a fruitful endeavour in the longer term, if you ask me. The business is looking to drive sustainable profitability and growth, as well as offer shareholder value. This is through four areas, consisting of focusing on direct-to-consumer sales, operational excellence, customer connections, and supporting business-to-business partnerships. The firm also has a good footprint globally and has diversified through its other product ranges.
So when I drill down into current figures, my interest is piqued. I can see Dr Martens has grown revenue in the past three years at an average rate of 14%.
In addition to its positive recent track record, I can see the shares look good value for money on a price-to-earnings ratio of eight. This is much lower than the industry average, which is closer to 19.
Furthermore, there’s a dividend yield of 6% on offer. However, I’m conscious dividends are never guaranteed.
Moving to the bear case, I must admit I’m slightly concerned by high debt levels, as this is costlier to pay down during times of higher interest rates, like now. At present, debt outweighs cash levels on its balance sheet. This could also have a material impact on investor returns. Plus, if this gets worse, the firm may need funds to stay afloat, but that’s the very worst-case scenario, in my opinion.
Finally, continued volatility and weakened spending among consumers could cause issues for the company too. I’ll be keeping an eye on future updates here to see how the economic picture is impacting performance.
Final thoughts
Recent trading showed a slight drop in revenue, but the firm did warn of this ahead of the update. So I was a bit surprised when the shares fell as much as they did.
Overall I reckon the drop in share price is a bit overcooked. Beneath the surface, there looks to be some good fundamentals on offer and decent growth prospects, not to mention great brand power and a solid profile.
I reckon once volatility dissipates, and the strategic review can continue to bear fruit, the shares could climb. I’d be willing to buy some shares when I next have some capital available.
