Well I had to look twice. Footasylum (LON:FOOT)
Is the market really so twitchy about retail that a company with previous steady growth, good on-line sales and a good story, could drop by nearly half in one morning?
I would expect a correction, obviously, but 48%.
surely this is a reactive over-correction (or am I missing something major here. has the whole board resigned en. mass?), or will it bounce back by 20-25% to more realistically reflect the downgrades.
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I'm guessing the prospectus must have been full of bullish opinion which has now all been undone.
If that's the case you can't blame the institutions for feeling that they have been lied to.
There is still room for this to go further down IMO looking at the valuation. Shoe Zone is a lot cheaper and comes with far more predictable earnings.
Operating profit was down because of 6 million exceptional items. £4.1 for the IPO (bloody hell!!) and £1.9 for HMRC VAT - I'd have thought the IPO costs would have been factored in already but I haven't looked back to the IPO to check. Either way it's a shitstorm!!!
I don't think the warning is that bad. Most of the YoY drop in profit is related to the IPO. The company has put a presentation on their website explaining the YoY movement in earnings (its well worth a read). I cant help but think that investors are concentrating too much on short term profits. Surely the opportunity here is all about the belief that management can hit 150 stores in the UK over the next say 5 years as they have previously mentioned. If they hit 150 stores in the UK they should be able to make £23m per annum. Meanwhile the website is capable of at least the same and is growing at a similar rate to Boohoo. Boohoo on 4x sales Asos on 2.5 x sales while FOOT is on 0.5x sales with similar margins. If FOOTS website was valued ata 4x sales like BOO then it would be worth £150m alone vs. 85m current market cap and you get the shops for free.....
Hi Taylor,
That's a very good point about how their on-line business has been valued.
It could mean, coupled with today's reaction/over-reaction (only time will tell), the business is undervalued by quite a margin. I can't see a sudden rise back to last week's levels, but I could imagine a recovery of sorts sometime soon.
I also feel bad for the existing private shareholders, as there was, apparently, no sign of this beforehand. That lack of confidence in their communications has probably been more damaging than the actual figures. Hopefully a lesson for for their young CEO.
Liberum who I believe brought this to market goes in to my black book along with Zeus !!
I've just bought FOOT (where Angels fear to tread and all that!).
I just figured they are now undervalued and with a stop in place, perhaps the potential upside is bigger than the limited downside. Seems to be some offloading at the moment, probably laggards who didn't sell from yesterday. But the demand is there, keeps going back to that support level just under 80p.
Wow - another 10% fall today. Looks like my stop will be hit. Note to self (again) avoid profit warnings of any kind until you see some momentum swinging the other way. Far better to miss out on gains at the beginning of a swing upwards then to get the tail end of a fall that ends who knows when!!
If you haven't watched it already look for the Stockopedia articles and video on the anatomy of a profit warning. It shows that catching a falling knife is never a good idea. Well worth a look, my commiserations to holders of Footasylum (LON:FOOT)
This reads more like a self inflicted decision rather than an extreme downturn in trading. I think this is a big difference. The product seems to be still selling (no evidence to the contrary). JD Sports makes 35% RoE and I think that FOOT has similar prospects. But being smaller, less stores and better mix of internet sales, I cant help but think that this company is quite well positioned. With regard to profits it all depends how investors frame the business. If this was framed as an online retailer I confident to say that very little would have happened because investors would have prioritised sales growth over profits. Yet as this is framed as a physical retailer its getting killed even despite the fact that online is growing much quicker than physical and will most likely over take physical at some point.
I've said this already the stores are for free. In fact they are better than for free as the increased scale the stores give provides economies of scale in purchases, in brand, in advertising, in customer offering and in terms of profits.
If you are a long term investor you should only be concerned of the long term outcome. If sales were turning down and future growth prospects were limited I would have a completely different view, but this company is capable of scaling to 150 stores in the UK alone, a number of websites that make similar profits from UK alone and a new wholesale business which may also produce say £5m per year.
Finally with other retailers falling to the way side FOOT may just be one of the lucky few being able to get into the prime locations on the cheap.
With this falling knife, it may well get a bit cheaper yet, but if you believe in the 5 year view, I'm not sure how relevant it is whether you get in at 70p, 60p or even 50p. Personally I have bought some and I will be patient and add further over time, now that I am in, I may well let it start to recover before adding more.
Of note it will be interesting to see if Marlborough and Slater keep there position, sell or add to it....
If you haven't watched it already look for the Stockopedia articles and video on the anatomy of a profit warning. It shows that catching a falling knife is never [MY BOLDING] a good idea.
I would actually dispute that. What it actually shows is that on average catching a falling knife is not a good idea.
I'm sure that sounds picky, but for me it is one of the great strengths of much that is written by the Stocko team, without being proscriptive (which is almost 'never' a good idea) it guides to the areas that are more or less fertile for investment.
The caution on profit warnings is similar to that on "sucker stocks" that unless you have 'an edge' (or a lot of luck) your pushing water uphill investing in these areas.
People will still try - why? Because potentially the rewards are greater than investing in the safer options and sometimes you will have an edge and make handsome gains. But unless you actually are 'well above average' (and lets face it we cannot all be) if you let those successes over-egg your confidence you are unlikely to 'win' in the long run.
There are certainly some 'profit warnings' that I would consider buying. On the other hand though, this is certainly not one of them!
Personally, I think making a profit after a big fall is a matter of two things. 1. Determining if it has actually fallen to a level at which it becomes undervalued (and I guess everyone could do this valuation slightly differently, as it is quite subjective). Sentiment can also drive a stock far lower than valuation would suggest. 2. Finding the bottom of the fall, or close to it (its probably safer to miss a few percent at the bottom and ensure its really rising again), rather than go in on a false dawn, only to realise it has started to fall again.
Sounds simple, but not always so easy to execute. Often (but not always) a stock which has fallen dramatically, will bounce back somewhat, as momentum and sentiment drives it lower than the the new intrinsic value, making it a buy opportunity, bringing in new investors and forcing shorters to close their positions which I feel also has some influence in the early stages of the rise.
Hi
I think there is also a distinction you can make here:-
1) Profit warning from established companies.
2) Profit warnings from newly floated stocks.
The latter is a bit different - the market feels it has been cheated. So whilst a bounce from a harsh write down from the first can potentially (and only potentially) be expected - a bounce from a new float is many times less likely.
Each one to his own but I suggest you look at Luceco (LON:LUCE) and UP Global Sourcing Holdings (LON:UPGS) for example - I'm sure there are many more. Catching a falling knife is a risk with an established share, with a newbie it's way, way worse.
But good luck.
Phil
Hi Phil (Edward?),
I fully agree with you about the market feeling cheated over profit warnings from newly floated stocks.
Personally, I never buy in at IPO (but many do and I guess quite successfully and substantially). I always wait 18 months or so (burnt my fingers on IPO). Where as I have a 7/11 success rate with recoveries and the gains on the 7 were much larger than the losses on the non-gainers. I've called them non-gainers as they have tended to languish at the lower price, before I sold or was stopped out.
I will look at your examples though, thanks. We are all learning all the time.
All the best,
Mark.
BTW forgot to put in a couple of examples (some go back a few years) but here is a fairly recent one and a very recent one. Dignity (LON:DTY) XLMedia (LON:XLM). I still hold xml at the moment.
Catching a falling knife is a risk. The best time to catch it is after it has hit the ground (I mean the bottom of the curve, not absolute zero). The hard part is knowing when it has happened. Looking back at charts, its obvious, but in real time (or close to) we all know its much harder, and that's where the stops come in, to limit risk. The other way I limit risk is to only trade (and I say trading, as this is not really investing IMO) with a very small (< 3%) proportion of capital. The lions share is in long term investments.
Thanks for your input. I will consider the difference between PWs from established companies and PWs from recent IPO and take it on board in my decisions.
Cheers,
Mark.
I think the award of 2 million pounds worth of options at effectively nil price to the Chairman might stir things up further.
(Still, they would have been worth 5 million a couple of days ago.)
Phil
Do you mean Barry Brown, the new EC? That's some incentive to keep the share price higher.
Second profit warning - ? third when the interim results come out?
The brave(?) are buying in at 41p.
I'm not brave enough for this stock anymore. I did manage to scrape a small profit from this last time, probably more by luck than anything else.
Having read Paul's excellent assessment today, I don't think I'll be buying back in anytime soon.
I've had some successes recently with recoveries (e.g. TCAP), so far, I should say.
But Footasylum (LON:FOOT) doesn't so much look like a falling knife as a double edged sword (expanding outlets, whilst burning cash and with disappearing profits).
