Shares in FTSE 250 boot manufacturer Dr Martens (LSE:DOCS) have fallen 83% since the company joined the stock market in 2021. But the stock has been showing signs of life recently.
The share price rallied sharply at the end of last year. And with a new CEO set to take charge this month, could 2025 be a year of recovery for the business?
The problems
Dr Martens has been dealing with two problems. The first is weak demand in the US and the second is difficulties with shifting from selling via retailers to selling directly to consumers.
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The aim has been to boost margins, but the only thing that has been going up is the firm’s costs. Managing inventory 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 start 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 boost demand.
The business has also been pulling back on its purchasing to bring down its inventory levels. And its net debt has fallen by 27% over the last 12 months as a result.
In short, positive signs are starting to appear in the company’s plans to reinvigorate itself. The stock has started climbing as a result, but is this a false dawn or is there more to come in 2025?
Outlook
In terms of forecasting a recovery for Dr Martens shares in 2025, there are two questions. The first is what the business is going to do and the second is how investors will react to this.
While the firm has done a good job with its balance sheet and its costs, it’s losing money. And while the dividend has been reduced, even this might be unsustainable unless things change.
The problem is sales – the latest update reported revenues down 18% and this is going to 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 US looks like the kind of thing that could dampen consumer demand. And that will make arresting the declining sales a challenge.
I’m therefore wary about the outlook for Dr Martens shares in 2025. Exactly how investors will react to the company’s news is hard to predict, but the business has a long way to go.
The longer it takes for the firm’s problems to resolve, the more the stock looks like a value trap. And to some extent, this is out of the company’s hands.
A 2025 recovery?
Sometimes, the best time to buy shares can be when it looks like everything is going wrong. Any sign of improvement can cause the share price to surge.
If signs of recovery aren’t forthcoming, though, a stock can turn out to be a value trap. Even if it recovers eventually, the cost of waiting makes it a bad investment.
The next thing for Dr Martens is a recovery in sales. But without a strong reason for thinking this is imminent, I’m not backing this one for a 2025 comeback.
