I often like to screen the market for ideas that I think history’s greatest investors might be interested in, and my latest FTSE 350 filter highlighted Dr. Martens (LSE: DOCS) as one such company.

I think it’s fair to say that value investing, in the style popularised by Warren Buffett, is not the most exciting form of investing. It often involves identifying a high-quality company and then resisting the urge to purchase until the price becomes out of sync with the strong fundamentals. For that reason, I like to automate this process by using market screeners, which will notify me when a company with the characteristics I desire enters a suitable price range.

For these market screeners, I look for companies that have consistently grown earnings, a steady increase in profit margins, relatively low levels of borrowing, and plenty of positive cash flow. I find these core characteristics act as a good filter for identifying the type of shares I would be interested in, and in this instance, Dr. Martens met the restrictions.

This is a company that has seen double and triple-digit operating cash flow increases over the last one and two years respectively. It has also managed to steadily increase profit margins, and boost the efficiency with which it generates income from invested capital. In addition, Dr. Martens has a relatively low level of borrowing, in comparison to the industry and relative to its market capitalisation.

Despite these positive underlying fundamentals, Dr. Martens has experienced a tough time in the market over the last two years since its IPO, falling 39.1% in 2022. The company is also down just over 40% since the IPO in early 2021, indicating the market has not been hugely favourable towards Dr. Martens since joining the index. There are times when the market appears to be misjudging a company, but also times when falls in valuations are justified, so it’s important to consider whether this reduction in valuation is warranted.

For my portfolio, I would be tempted to add Dr. Martens shares, as I believe it has proven strong underlying fundamentals that Buffett would be looking for in an investment. Recent share price falls have now brought the company into a price range that is more in line with value investment principles, too. I would therefore be tempted to follow the investment strategy of Warren Buffett and add Dr. Martens to my portfolio.

FTSE fashion stock

As a quick reminder, Dr Martens is a fashion brand that specialises in footwear and accessories. It is perhaps best known for its iconic boots. As with any fashion business, trends have changed, and Dr Martens has moved with the times over the past century since its inception in 1901.

So what’s happening with Dr Martens shares currently? Well, as I write, they’re trading for 261p. At this time last year, the stock was trading for 399p, which is a 34% drop over a 12-month period.

I’m not concerned by the Dr Martens share price drop. The business listed only last year on the FTSE via an initial public offering (IPO). Management later confirmed £80.5m worth of costs attributed to the listing and this caused shares to drop. Furthermore, in recent months, many stocks have pulled back due to macroeconomic headwinds and the tragic events in Ukraine.

Risks to note

The recent macroeconomic headwinds include soaring inflation, the rising cost of raw materials, as well as the global supply chain crisis. These could all have a negative impact on Dr Martens and other FTSE stocks. Rising costs mean that profit margins could be squeezed. This in turn affects performance, returns, and investor sentiment. Supply chain issues could affect operations and sales too.

With inflation soaring, a cost-of-living crisis has emerged here in the UK, as well as issues in many other leading world economies that Dr Martens operates in. In times of austerity, premium brands may suffer if consumers turn to cheaper alternatives to conserve cash.

The bull case and my verdict

Dr Martens’ full-year results for the period ending 31 March 2022 were impressive. Sales totalled £908m, leading to a profit of £181m. This was higher than the forecast of £155m. Tellingly for me, gross margin grew by 63.7% compared to 2.8% previously. I noticed from that update that a shift in focusing on retail sales, rather than distribution, boosted the company’s balance sheet and led to this impressive performance.

As part of the trading update, Dr Martens outlined ambitious growth plans for areas where it feels there is a lot of untapped potential. This includes gaining further entry into lucrative markets such as China, the US, Germany, and Japan.

Based on Dr Martens share price, the shares currently look decent value for money on a price-to-earnings ratio of 13. Furthermore, its impressive results saw its dividend increase, which would boost my passive income stream. Its current dividend yield stands at just over 2%. This is in line with the FTSE 250 average. I am aware that dividends can be cancelled at any time, however.

Overall, I’m tempted to add Dr Martens shares to my holdings. I believe recent results were impressive and could be the start of a sustained period of growth. My only issue is if it doesn’t manage to fulfil its own lofty expectations, the shares could take a major hit. I will keep an eye on developments, however.

Just what the Dr ordered

Dr Martens has had a tough year since the business listed via an IPO last January. The stock tumbled after management disclosed a heavy £80.5m in listing costs. Additionally, a £49.1m one-off IPO bonus given to employees soured investor sentiment further, stomping the Dr Martens share price into the ground.

Nonetheless, the firm’s most recent annual results blew my expectations out of the water. I was taken aback by how well the FTSE 250 growth stock did as a business, rather than as an investment, having been initially bearish about the company’s prospects. Sales for the year came in at £908m with a net profit of £181m. This was well above what analysts had forecast at £155m. More impressively, Dr Martens grew its gross margins by 2.8% to 63.7%. The company focused more on its own retail sales and cut wholesale distribution, which helped its bottom line massively.

A strong tail kick

It’s no secret that strong, in-demand brands fare better in high-inflation environments because these brands are able to pass on costs to consumers who will still buy their products. And Dr Martens has price rises in the pipeline. Its sector is bearing up well too. Despite the latest BRC retail sales data showing a contraction in overall consumer spending, the fashion industry did relatively well.

As such, Dr Martens has a tailwind that could help it ride through the inflationary storm. On the earnings call, CEO Kenny Wilson mentioned that he doesn’t see demand softening. He reiterated the company’s efforts to expand further in America, Germany, Japan, and China where he sees untapped potential for growth. With China also coming out of lockdown, this could be a windfall opportunity for the boot maker.

A big boot to fill

With that being said, I think it’s important to stay realistic about Dr Martens’ goals. Its amazing numbers and lofty ambitions should definitely be commended. However, the manufacturer now has to live up to the high expectations it set out, or risk its stock crumbling again.

Nevertheless, I’m impressed with how the firm has managed to improve the state of its balance sheet. For one, its debt-to-equity ratio is finally below 100%. Secondly, it increased its free cash flow to £159m from £129m last quarter. Dr Martens also has a healthy level of assets to cover its short-term liabilities. Finally, the company increased its dividend to £0.04 per share, giving it a 3% yield. So, with an average price target of £3.32, Dr Martens seems to me like it could be on track for an explosive recovery, making it a lucrative growth stock for me to purchase for my portfolio.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Airtel Africa 

What it does: Airtel Africa provides telecommunications and mobile money services in sub-Saharan Africa. 

By Royston Wild. Demand for telecoms services remains largely unchanged during all points of the economic cycle. Therefore, it’s my belief that Airtel Africa (LSE: AAF) could be a top growth stock for June as inflation rises and recessionary risks grow.

City analysts think Airtel’s earnings will rise 12% in the current financial year (to March 2023). They think profits growth will accelerate to 16% next year too. 

And so at today’s prices, the FTSE 100 share trades on a bargain-basement forward price-to-earnings (P/E) ratio of 8.4 times. 

I don’t just think Airtel’s a great buy for these uncertain times, though. Its focus on the fast-growing markets of Africa provides it with exceptional long-term revenue opportunities. Product penetration remains low across both the telecoms and financial services industries in its markets. Meanwhile, personal wealth levels are rocketing and population levels are rising strongly too. 

Pre-tax profits at Airtel leapt 75.6% in the financial year to March, the latest financials this month showed. These came in at a forecast-beating $1.2bn. I expect the Footsie business to continue impressing as its customer base balloons. 

Royston Wild does not own shares in Airtel Africa. 

Rolls-Royce

What it does: Rolls-Royce is a multinational civil aerospace, defence, and power systems company based in the UK.

By Dylan Hood: The Rolls-Royce (LSE:RR) share price has struggled ever since the pandemic first hit. However, the firm recently announced a trading update that contained some encouraging metrics. For FY2021, gross margins increased 23.4% compared to FY2020, leaving the company profitable for the first time since the pandemic’s onset over two years ago.

The firm is also making encouraging steps in its plan to rebuild its balance sheet, and has committed to achieving positive free cash flow by Q3 of 2022.

Investors have already been reacting positively to this news, with the price of Rolls-Royce shares climbing over 6% throughout May. While still under the £1 mark, I believe now could be a great time to open a position in my portfolio for future growth.

Dylan Hood does not own shares in Rolls-Royce.

Softcat

What it does: Softcat provides IT infrastructure solutions. Its areas of expertise include cloud computing, data, and cybersecurity.

By Edward Sheldon, CFA. Softcat (LSE: SCT) shares have experienced a significant pullback since September 2021 and I think this has presented an attractive buying opportunity.

A recent trading update showed that the tech company still has plenty of momentum. Indeed, the group advised that for the quarter ended 30 April 2022, it generated double-digit year-on-year growth in revenue, gross profit, and operating profit. It added that it now expects operating profit for the full year to be “slightly ahead” of its previous expectations.

Meanwhile, after the recent pullback, the stock’s valuation now seems quite reasonable. At present, the forward-looking P/E ratio here is about 27, which is not high in my view, given the company’s track record, growth potential, high level of profitability, and strong balance sheet.

Of course, if future growth is disappointing, the stock could underperform. All things considered, however, I like SCT’s long-term risk/reward profile.

Edward Sheldon owns shares in Softcat.

Ceres Power

What it does: The Sussex-headquartered firm is a world leader in metal-supported solid oxide fuel cell technology.

By Dr. James Fox. The hydrogen industry has enormous potential and that’s why I’m keeping a close eye on Ceres Power (LSE:CWR).

The UK-based fuel cell developer is yet to turn a profit. However, revenue is growing. Ceres reported a 44% increase in revenue and other operating income in 2021, reaching £31.7m.

As such, it currently has a price-to-sales revenue of around 40. That’s not cheap, but equally this also reflects the sector’s potential.

Ceres licences its energy technology to individual manufacturers, reducing costs relating to the building of manufacturing facilities. It also has lucrative partnerships with Bosch and Doosan.

Doosan is preparing for a soft launch of its 10kW SOFC product this year and will open a 79,200sq metre plant in 2024. With production being scaled up, 2022 could be a transformative year for the firm.

And with the share price falling over the past 12 months, it looks like a good time to add this stock to my portfolio. 

James Fox does not own shares in Ceres Power.

Petrofac

What it does: Petrofac designs, builds, manages and maintains oil, gas, and renewable infrastructure internationally. 

By Michelle Freeman. The recent windfall tax announcement may have made headlines for the oil & gas giants like BP and Shell, but it also created an instant demand for oil & gas infrastructure services. 

Why? Because the ability to offset investment spend against the new levy means that right now, plenty of UK-based projects will have been given a huge business case boost.  

But getting the go-ahead is only part of the battle. They’ll also need to be able to spend the money – and that’s going to lead to a spike in demand for the next few years at least. 

Petrofac (LSE:PFC) is one of a few companies that are well positioned to benefit from this upturn – alongside the wider trend globally as infrastructure spend returns with the high oil and gas prices. 

The best part for me, though: it’s not a one-trick pony, having also diversified nicely with its complementary renewables infrastructure arm. Win-win! 

Michelle Freeman does not own shares in Petrofac.

Howden Joinery Group

What it does: Howden Joinery is the UK’s largest vertically integrated trade kitchen supplier within the home improvement industry.

By Zaven Boyrazian. Renovating or constructing new kitchens may not sound like a lucrative investment opportunity. Yet Howden Joinery (LSE:HWDN) seems to disprove that. Looking at its latest trading update, the firm delivered an impressive 21.8% revenue growth – almost twice what it’s historically achieved. And that’s during its low season.

With its peak trading period just around the corner, the stock looks primed for a bounce-back after its recent tumble in the general market turmoil. There are valid fears of a slowdown risk due to rising inflation and a consumer spending crunch. However, given management continues to pursue its expansion plans in the UK and France, there appears to be a high degree of internal confidence that I like to see.

From what I can see, Howden Joinery is delivering its fastest growth in years, yet its share price is trading near a 52-week low. That, to me, looks like a fantastic buying opportunity for my portfolio.

Zaven Boyrazian does not own shares in Howden Joinery Group.

Hikma Pharmaceuticals 

What it does: Hikma develops, manufactures and markets a wide range of high-quality generic, branded and in-licensed pharmaceutical products. 

By G A Chester. Hikma Pharmaceuticals (LSE: HIK) has been out of favour for a while. Its shares are down around 30% over the last 12 months. 

The latest knock to market sentiment came in May. Hikma downgraded its guidance on the expected performance of its generics division in 2022. 

Management’s previous guidance was for revenue growth of 8%-10% over 2021’s revenue of $820m and an operating margin of 24%-25%.The new guidance lowered revenue to $710m-$750m and the operating margin to around 20%. 

The reason was a change in expectations of the launch timing of a generic medicine, shifting its revenue and profit contribution from the second half of 2022 to the first half of 2023. 

I don’t think this damages Hikma’s long-term growth story. The recent resignation of chief executive Siggi Olafsson — to pursue other opportunities — adds further uncertainty. But I reckon the weak share price represents a great opportunity for me. 

G A Chester does not own shares in Hikma Pharmaceuticals 

Greencore

What it does: FTSE 250 firm Greencore supplies convenience foods to retailers and food-to-go outlets all over the UK.

By Roland Head. Convenience food specialist Greencore (LSE: GNC) is bouncing back strongly from the pandemic. The firm reported sales up 34% to £771m during the half year to 25 March, thanks to “strong growth in food to go”.

I think the company’s growth is set to continue. City forecasts suggest Greencore’s pre-tax profit will hit £63.5m in the 2022 financial year and £80.6m next year.

The business is expanding beyond its historic strength in sandwiches to offer foods such as salads, sushi, ready meals and soups and sauces. Over time, I think this strategy is likely to support steady long-term growth.

Of course, larger retailers such as supermarkets are tough customers. They’re likely to keep pressure on Greencore’s prices and margins.

Today, Greencore shares trade on 12 times 2022 forecast earnings, falling to a forecast P/E of nine for 2023. That looks good value to me.

Roland Head does not own shares in Greencore.

Plus500 

What it does: Plus500 provides online trading services in Contracts for Difference (CFDs) across a range of asset classes.

By Charlie Carman. Benefitting from the rise in retail trading activity over the pandemic, the Plus500 (LSE: PLUS) share price has soared nearly 90% since the start of the UK’s first lockdown in March 2020.

The FTSE 250 fintech company’s latest quarterly results revealed impressive 33% year-on-year increases in revenue and EBITDA. Admittedly, Plus500 experienced a 35% decline in active customers compared to Q1, 2021. However, average revenue per user rocketed by 104%, which sufficiently offsets any potential concerns for me.

Plus500 continues to expand its global operations. The Israel-based business recently obtained a new licence in Estonia, improving its core product offering in European markets. In addition, its acquisition of EZ Invest Securities signalled an entry into the substantial Japanese retail trading market.

It seems elevated stock market volatility is here to stay for the time being. I believe Plus500 shares should perform well in this macroeconomic environment. I’d buy in June.

Charlie Carman does not own shares in Plus500. 

Dr. Martens

What it does: Dr. Martens is a luxury brand that sells footwear. Its boots are a cultural staple and its best selling item.

By John Choong – With stagnating retail sales data over the last quarter, I was originally bearish about Dr. Martens (LSE: DOCS)’ prospects. However, its stellar FY 2022 results blew my expectations out of the water. As a result, its share price surged by 18%.

Being a luxury brand, Dr. Martens has managed to pass its costs onto customers without negatively impacting its top and bottom lines. In fact, its profit margins saw an increase to 19.9% for the year, along with strong sales figures. This has pushed its free cash flow in the right direction too.

Additionally, management expects a strong FY23, citing “huge headroom for growth in key markets”, as well as a strong wholesale order book with fixed factory prices. The latter allows the firm to hedge against inflationary pressures, which is crucial given the macroeconomic environment. 

Therefore, I’m optimistic about the future of the company, and will be looking to buy shares in the near future.

John Choong has no position in Dr. Martens

Wizz Air

What it does: Wizz Air is a Hungary-based airline, specialising in the operation of short-haul flights around Europe, North Africa, and the Middle East.

By Andrew Woods. The improvement in the firm’s passenger numbers in recent months is quite staggering. For May, Wizz Air (LSE:WIZZ) flew 4.1m people, with a load factor of 84.2%. This was up from 3.6m and 83.4% in April. These passenger figures for May and April also equate to 390% and 542% increases, compared to the same periods last year.

As pandemic travel restrictions are relaxed, the airline is expecting a very busy summer. It has been recruiting cabin crew at pace to try and keep up with demand, but many flights have already been cancelled. This disruption could subside once the business hires more employees.

Wizz Air recently signed a memorandum of understanding with the Saudi Arabian government to explore the potential development of routes throughout the country. This would greatly increase the company’s presence in the Middle East.

In addition, a cash balance of €1.3bn suggests that the firm is in decent financial shape and well positioned for returning to higher capacity in the coming months.

Andrew Woods does not own shares in Wizz Air.

Investors had feared that the firm’s progress would be held back by soaring manufacturing and transport delays. But this doesn’t seem to have been a big problem. I’m wondering whether I should buy Doc Martens shares for my Stocks and Shares ISA, ahead of further possible gains.

A strong result

Doc Martens reported sales of £908m and an after-tax profit of £181m for the year ended 31 March. That smashed City forecasts for a profit of just £155m.

When supplies were tight, management prioritised sales through its own stores and website and cut wholesale shipments. This allowed the company to generate an underlying cash profit margin of 29%, slightly higher than in the previous year.

I think that’s a pretty solid result, given that Doc Martens faced problems including a three-month factory closure in Vietnam and “a near-doubling of shipping times” from Asia to the USA.

As well as being a good financial performance, this achievement suggests to me that Doc Martens has good operational management. That’s something I always try and look for in an investment, to help minimise the risk of nasty surprises.

Another good year ahead?

Before I think about buying its shares, I need to know whether sales are likely to continue growing over the coming year.

Fortunately, management have chosen to provide clear guidance to investors on this front. Chief executive Kenny Wilson said that factory prices for the year are now locked in and “we have good visibility” over other operating costs.

In financial terms, sales are expected to rise by “high teens”, which I take to mean 15-19%. Profit margins are expected to be broadly the same as last year.

I’ve made some rough calculations and I estimate that after-tax profit could rise by perhaps 7%, to £193m this year. That’s slightly ahead of previous broker forecasts and would be a good result, in my view.

A bargain FTSE 250 share?

Dr Martens’ management seem to be bullish about the year ahead. But there’s one topic it skirted around in Wednesday’s results – consumer demand. Footwear prices are being increased from this autumn to reflect higher costs. But management said it still expects to sell more pairs of boots and shoes this year.

Perhaps they will. But what concerns me is the risk that sales growth could slow as the rising cost of living hits consumer spending. After all, a new pair of DMs is not exactly an essential purchase.

If sales slow, then profits could quickly fall below current expectations. To protect against this risk, I’d want to make sure that I don’t overpay for Doc Martens shares.

After Wednesday’s share price surge, I estimate that DOCS shares are trading on perhaps 14 times forecast earnings. On balance, I’d say this is probably a reasonable price.

However, in this uncertain market, I’m focusing my attention on shares I think are really cheap. I’m not sure that Dr Martens fits this description, so I won’t be buying just yet.

An unfashionable stock

boohoo (LSE: BOO) is one of the UK’s biggest fashion retailers. The online fashion retailer had already been 30% down this year, but plunged a further 12% after it released its FY22 results. Nonetheless, it’s managed to recover most of its post-earnings loss since then.

The firm had already been starting to see a slowdown in sales growth due to “Significantly longer customer delivery times as a result of the pandemic”. Nevertheless, its new distribution centre in the US is expected to go live in mid-2023. With next day and two-day express delivery options available, this could help ease the supply chain constraints that boohoo is currently facing, and help the stock price.

However, with inflation continuing to weigh on consumer spending, I expect sales growth to continue declining. Management shares my sentiment too, as guidance for FY23 is for low-digit revenue growth. Expensive freight costs have also impacted its bottom line as the firm saw its profit margin decline from 5.2% in FY21 to -0.2% in FY22. For that reason, I won’t be buying this stock for now.

In the eye of the storm

The unfortunate events of the Russia-Ukraine skirmish has battered the Ferrexpo (LSE: FXPO) share price. Commonly known for being a high-dividend yield stock, the stock is now trading at 65% off its all-time-high.

The Ukraine-focused firm faces a large amount of uncertainty given the ongoing war there. Any further escalation might run the company out of business as its mining operations are located just east of Kyiv, where it’s more susceptible to Russian attacks. Additionally, China’s city-wide lockdowns have driven iron ore prices down. This will inevitably impact Ferrexpo’s top line in the near to medium term. Most importantly, the firm decided to defer its dividend payments. The board said that it will continue to assess the situation in Ukraine and make a decision on dividends when appropriate. With many investors initially buying the stock for its dividend, this is a stock I’m avoiding.

Getting the boot

Aside from sky-high inflation, Dr Martens (LSE: DOCS) will also have to worry about the recent retail sales figures. Although positive for the month of April itself, retail sales for the three months to April fell 0.3% as high inflation hurt purchasing power. That’s one reason why its stock is down 50% this year.

The majority of the firm’s revenue stems from the Americas and EMEA region. With inflation continuing to spiral out of control, this doesn’t bode well for Dr Martens’ near-term outlook. As central banks in these regions rush to raise interest rates, its debt levels start to become even more alarming. The firm has a debt-to-equity ratio of 140%, a declining free cash flow, and higher operating expenditure. These aren’t factors that are favourable when I invest in UK stocks, especially in a high interest rate environment. As such, I’ll be looking to purchase other shares with much more favourable fundamentals.

I reckon the FTSE 250 is a great place to go hunting for future winners. But the index has cooled over the last year, falling 11%. I reckon this fall has created some possible bargains. Here are three cheap growth stocks I’m considering for my portfolio.

Super quality, fair price

Investment platform AJ Bell (LSE: AJB) benefited strongly from the pandemic trading boom. Pre-tax profit rose from £37.7m in 2019 to £55.1m in 2021.

However, stock markets have calmed down as life has returned to normal. Broker forecasts for this year suggest profits could fall by around 5%.

AJ Bell’s share price has fallen by more than 40% over the last year as investors have turned cautious. I think this could be a chance for me to pick up a quality business cheap.

After all, this year’s slowdown is only expected to be a one-off blip. Forecasts suggest that earnings will rise by 15% next year and again in 2023/24.

Today, I can buy AJ Bell shares at a price of 25 times forecast earnings, with a 2.7% dividend yield. For a business with a 38% operating margin and decent growth potential, I think this looks very reasonable.

A classic fashion brand

Demand for the distinctive boots made by Dr Martens (LSE: DOCS) is stronger than ever. Sales rose by 15% to £773m last year. This number is expected to have hit £908m during the year ended 31 March.

City analysts expect Dr Martens earnings to keep rising over the next two years. But stock market investors seem to disagree. The stock has fallen by 55% over the last year.

One problem has been that the company has warned of supply chain problems hitting US shipments. Rising costs have also forced Dr Martens to raise its prices, which could hit consumer demand.

We’re still waiting for full-year figures to 31 March, but I think the company would already have issued a profit warning if earnings were going to be much lower than expected.

DOCS shares are now trading on just 11 times 2022/23 forecast earnings. That looks cheap to me for such a classic brand. I’m definitely interested.

A 166-year-old growth stock!

Morgan Advanced Materials (LSE: MGAM) can trace its roots back to 1856, when the Morgan brothers started making crucibles at their factory in London.

Today the company makes a much wider range of industrial ceramics and other parts. One key market today is renewable energy. The company’s products are used in both wind turbines and solar panels.

Industrial concerns like this one can suffer during recessions. Rising costs are also a challenge, but CEO Peter Raby recently said that the company expected to be able to increase prices to match inflation.

Morgan Advanced Materials is below the radar for many investors, but analysts expect earnings to rise by 10% this year. Despite this confident outlook, the shares trade on less than 10 times forecast earnings. That seems cheap to me, especially as there’s also a useful 3.4% dividend yield.

I’ve recently added Morgan Advanced Materials to my portfolio, as I think the stock could outperform from current levels.

Why investors are walking away 

As one might expect, this isn’t just some random capitulation. Today’s trading update contained what I believe to be pretty worrying news for investors. 

Not that this was immediately apparent. After all, revenue rose 11% to £307m in Q3 — up from £275.6m over the same period in 2020. Direct-to-consumer sales came in 33% higher — a record for the company. Retail sales were particularly buoyant and benefited from more people striding into the stores in October and November.

“So, what’s the problem?“, you might ask. Well, that 11% mentioned above is actually down on the 16% growth achieved in the first half of its financial year. The reason for this probably won’t come as a surprise.

Like many other listed businesses, ongoing supply chain issues are starting to kick Dr Martens where it hurts. A move to prioritise the higher-margin DTC trading led to a 14% reduction at its wholesale arm. So, the company has essentially taken one step forward and one step back.

To make matters worse, revenue in the Asia Pacific region fell by 28% due to Covid-19 restrictions in countries such as China and Australia.

Has the Dr Martens share price fallen too far?

The Dr Marten share price hit a record low of 266p earlier today. Is this simply a case of the market over-reacting? Could the bootmaker turn out to be a canny contrarian buy in time? 

Well, no one knows where share prices will go in the near term. However, my gut tells me that things might get worse before they get better, especially as the company said today that February and March are regarded as “quieter trading months“. Regardless of how confident it is in being able to meet current expectations for its full year, that’s hardly bullish talk. Oh, and the latter is only the case if there is “no significant Covid impact in Q4“. Now, I’m as hopeful as the next person that we’ve reached the pandemic’s endgame. I wouldn’t like to bet on it though. 

For balance, I do recognise this is a brand loved by millions of people around the world. And it’s clear that the company is holding its own online. Sales here made up 39% of the total mix in Q3; that’s far higher than it used to be just a couple of years ago. Year-on-year e-commerce revenue also climbed 16% in the quarter, despite a “tough comparative“. 

Is this enough though? I don’t think it is. Just knowing that I don’t replace my own pair of boots very often is sufficient to make me question the investment case here. And the £2.9bn cap valuation.

Falling knife

I questioned the valuation of Dr Martens not long after it came to market almost exactly one year ago. Today’s update only serves to make me even more bearish. The shares may be down 36% from where they were one year ago but I think they could get even cheaper, especially with the company’s peak trading period now behind it.

Regardless of how highly I rate its products, Dr Martens looks to me like a falling knife. I won’t be attempting to catch it.

Encouraging results

Since its IPO in January 2021, Dr Martens stock has been volatile. From a yearly high of 521p, the share price currently sits around 365p. Not long after the IPO, the company released quarterly figures for the year ending March 2021. This was to provide greater clarity on where the share price might go in the future. The results showed year-on-year changes of -14% (Q1), 42% (Q2), 9% (Q3), and 19% (Q4). These positive results continued with a 64% increase in revenue in a trading statement in June 2021.

The main reason for these impressive recent results was the reopening of Dr Martens stores around the world. This is especially true in the US and Europe, with Japan still lagging. The US has been the most lucrative market for this stock, registering 106% growth in sales. Indeed, Barclays upgraded the company in December 2021 because of its ability to continue to grow revenue through its recognisable products. The first-half results in 2021, for the six months up to 30 September, gave me a lot of confidence as a potential investor, because global profit expanded by 65%. In addition, interim earnings-per-share increased 60%. With a dividend of £0.012 per share, I am pleased that most of the profits attributable to shareholders are being kept within the company. This enables further growth.

Why the drop in share price?

In spite of good results, the share price tumbled 11% in one day in early January 2022. This was solely due to the sale of 65m shares by private equity firm Permira. This company was in fact responsible for the listing of Dr Martens in January 2021. On closer inspection, the sale amounted to about one-seventh of Permira’s original holding. The private equity firm now owns 36% instead of the original 42%. This is hardly something I’m worried about.

While sales in the US are growing at a phenomenal rate, supply chain issues are starting to eat into the operation. This is likely due to the hangover from the Covid-19 pandemic and should subside in the near term. Nonetheless, the management has decided to add £10 to the price of boots to offset this problem. This price rise will also go some way to alleviating cost increases in raw materials and shipping. Furthermore, Dr Martens’ price-to-earnings (P/E) ratio of 68 is only slightly above the industry average of 64. Barclays has, however, hinted that given the company’s short track record it is difficult to currently value this stock.

I like this product and the recent growth of the company around the world is a very good sign. It seems that more results are required to achieve an accurate company valuation. While I won’t be buying these shares just now, I will not be ruling them out in the future.    

And Dr Martens boots seem to be everywhere — I’ve noticed articles in GQ, InStyle and British Vogue over the past month alone. So as the nights draw in and winter weather approaches, could the shoemaker be in for a bumper season and should I buy some shares?

Stumbling share price

Dr Martens made its stock market debut in January, at 370p per share. This was at the top end of its expected range after investor demand for the footwear firm meant that the offer was eight times oversubscribed. After reaching a high of 500p in February 2021, the Dr Martens share price juddered around the 475p mark until June, when it saw a period of slow decline. It’s now sitting back around 370p. 

Could winter weather, Black Friday sales and Christmas shopping season give it a boost?

Big strides

Despite retail stores being closed for a good chunk of the year, its half-year report looked pretty strong. On a two-year basis, e-commerce revenue for the firm was up 155%.  There’s also encouraging potential for future growth — revenue grew 46% in China despite the disruption of the pandemic. 

In terms of strategic priorities, Dr Martens is looking to reduce its reliance on third-party sellers and open between 20 and 25 of its own stores over the coming year. It’s also a growing player in the vegan shoe market, now offering six animal-friendly styles to customers. Using a vegan alternative upper material derived from mushrooms and a sugarcane-derived cushion are strategic priorities for the coming decade. 

Putting my foot in it?

But there are risks. Firstly, nationwide fuel shortages mean that materials deliveries are under threat. There’s even a risk that Dr Martens might not even be able to fulfil bumper orders if they materialise this winter.

Secondly, materials costs could squeeze margins if leather prices increase due to growing global demand. Dr Martens could also prove vulnerable to higher costs if inflation starts to bite — prices should adjust in the longer term, but there could be a period of discomfort in the medium term. 

And finally — fashion is fickle. The brand’s look is very much characterised by one thick soled, clumpy boot. These are hot properties in 2021 with the wider trend being all about heavy boots with chunky soles. And while Dr Martens also has timeless classic appeal (like a pair of Levi’s 501s), the company is still vulnerable to changing tastes over the coming years. There’s very little scope for diversification when a signature style is your calling card. 

It looks as though post-IPO enthusiasm may have worn off. With Dr Martens shares now almost back where they started in January, is it a good time for me to pick up a bargain? If the fashion press are to be believed, they could be a sensation over the winter, which could help to drive the share price back up. But I’m reluctant to put my foot in it. I won’t be adding this stock to my portfolio.