Jim Slater, the late British investment legend, used to have an affection for firms that could ‘clone’ their own activities. He saw the likes of retailers, restaurants and healthclubs as potential cash cows that only had to refine and prove their formula once. After that, they could expand at will. And with expansion would come high rates of return on capital and sequentially lower group overheads.
One nagging problem, though, is that roll-outs don’t always roll smoothly and growth stories can be hit by setbacks. This is exactly what investors in butchery chain Crawshaw have recently found out. Here I’m going to look back at the rise of Crawshaw, the factors that made it an appealing stock and the key signs that could help investors understand the risk of exposure to companies susceptible to sharp corrections on profit warnings.
How sentiment changed towards Crawshaw
Crawshaw has been a popular name among private investors over the past four years. Much of the investment case hinges on a profitable roll-out of its butchery and hot food stores. They’re anticipated to number 224 by 2024 - up from 39 in 2016. This process has been directed by chairman Richard Rose and, latterly, by chief executive Noel Collett, who was previously COO of Lidl UK.
So there was a great deal of disappointment this week that its like-for-like sales look set to fall in the first half of the year. Among other things, the company blamed the result on a combination of international football, adverse weather and Brexit - reasons that left investors feeling incredulous. It didn’t go down well, and shares in the company collapsed by more than 40%.
This could be a blip. It could be a temporary setback for a small company (now with a market cap of £33m) that’s utterly focused on expansion. All eyes will now be on how the management respond. But what can investors learn from this episode?
Learning lessons from Crawshaw
To get an idea why Crawshaw’s price fell so sharply it’s worth looking at how its profile has changed over time. One way of doing that is to look at Crawshaw through the lens of the StockRanks.
The StockRanks are designed to find good, cheap, shares on an upward trend. They use a combination of ratios and measures to score and rank stocks based on their quality, value and momentum, which are then blended to arrive at…
