Don't think a stock is too expensive just because it's hitting new highs. This fashion group is up 34% since its flotation, but there's plenty more to come, says Bengt Saelensminde.
We've all heard the adage 'buy low and sell high'. But that doesn't actually tell us when to buy, or when to sell. It works great if you've got 20/20 hindsight, otherwise we need something else.
My preferred adage is'A stock's never too high to buy and never too low to sell.'
What it really means is this: buy stocks that are on the up, and sell stocks that are on the way down. Don't think a stock is dear just because it's hitting new highs. And here's a stock that proves it.
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In March, I urged you to pick upSupergroup (LSE: SGP) at their flotation, and it was a good call. The fashion chain's shares are up 34% since they were made public. Pretty good when you consider the FTSE's down 9%. But I reckon there's more to come.
Before March, I didn't know much about Supergroup, or its main brand Superdry. I'm not what you'd call a fashionista; it's aimed at the likes of David Beckham, Jamie Oliver and Leonardo DiCaprio, all of them devotees.
But you can be sure that I'm taking notice of them now! And maybe you should too. The brand keeps cropping up all over the place; at the moment, they've got 40 stores and 54 concessions, but take a look at this.
"I think there's room for 1,000 franchises in Europe. We're nowhere near the peak. We're at the top table of profitability of any clothing store in the UK ... We could literally be the fastest-growing company on the whole stock market," That's what the founder reckons just on Europe!
Now, of course management want to talk-up their book. But I've been looking into this management team. I really think that they've got what it takes to carry their business forwards to the next level.
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Okay, maybe 1,000 stores across Europe is over-egging it a bit, but growth is definitely on the cards. Last week they announced a deal for 13 new franchises in the United Arab Emirates, and there's bound to be more in the pipeline. This looks promising.
A fashion chain that has been here before
French Connection
Now, I'm not going to draw too many parallels with French Connection: apples aren't comparable with pears after all. But I do want to make one obvious point. Brand affection (and profitability) comes and goes. And as you can see from the two charts, when a brand's in its ascendency, you want to get in on the action.
French Connection peaked in 2005. I don't think we've seen Supergoup peak yet. Right now Supergroup is in its ascendency. The charts tell us its bull run won't last forever, but you'd be a brave man to bet against them right now.
Remember, timing, timing, timing. For traders it's like location, location, location to property developers. And it's not too late to get into Supergroup. The stock should have so much good news behind it that momentum will carry it forwards for a while yet. Not even a negative stock market can keep it down.
Next week Supergroup goes into the FTSE 250, and it'll be picked up by the tracker funds. It's yet to hit the radar for many fund managers in the City. That could be about to change.
Never too high to buy... for the moment anyway.
This article was first published in the free investment emailThe Right Sideon 18 June 2010
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Bengt graduated from Reading University in 1994 and followed up with a master's degree in business economics.
He started stock market investing at the age of 13, and this eventually led to a job in the City of London in 1995. He started on a bond desk at Cantor Fitzgerald and ended up running a desk at stockbroker's Cazenove.
Bengt left the City in 2000 to start up his own import and beauty products business which he still runs today.
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