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Investec analysts believe that the recent IPO of the German shoe brand Birkenstock is expected to have a positive effect on the shares of the British shoe manufacturer Dr. Martens. Birkenstock’s debut on the New York Stock Exchange gave investors and analysts the first look at the financial and other metrics of a large, single-brand footwear company.
Using this data as a benchmark, Investec analysts expect significant growth potential for London-listed Dr. Martens, suggesting that the company’s prospects may be undervalued by the market.
Birkenstock is a good example of how Dr. Martens can become a big footwear brand and how profitable it can be
– stated Investec’s analysts. It was pointed out that last year’s revenue of Birkenstock minimally exceeded the estimated revenue of Dr. Martens for this year. However, Birkenstock sells more than twice as many shoes as Dr. Martens, which operates at a higher average selling price.
Investec predicts Dr Martens will aim to grow its revenue from the current £1bn to £2bn, available. The investment bank expects Dr Martens shares to rise to £2.15 over the next year, representing a 65 per cent upside potential.
According to analysts, the business model and brand ethos of Birkenstock and Dr. Martens are similar; both have vertically integrated production models and multi-channel distribution strategies that focus on direct-to-consumer sales. However, there are also differences; Birkenstock owns five factories in Germany, while Dr. Martens outsources most of its production to seven countries.
Analysts at Investec say Dr. Martens is undervalued, reflecting temporary underperformance in the US rather than strong cash flow and growth potential. They believe investors are currently overlooking the company’s ability to return to double-digit annual growth as sales in Europe and Asia-Pacific continue to perform well.
Analysts at RBC Capital Markets are taking a more cautious view on “luxury” stocks like Dr. Martens, citing that the luxury market will moderate. They have a hold rating on Dr Martens and expect the share price to rise 15 per cent to £1.30 over the next 12 months.
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