As a quick reminder, Ted Baker is a global lifestyle brand based in the UK. Its collections include menswear, womenswear, accessories, fragrance, footwear, eye wear, and watches. It currently has stores in the UK, US, and Asia.

Ted Baker share price rallies amid takeover talk

Ted Baker has been the subject of takeover interest in recent weeks. I believe this has caused the shares to rally. Here’s a quick timeline of events.

• 18 March 2022 – US-based private equity firm Sycamore expresses interest in buying Ted Baker, causing the Ted Baker share price to rally by 21%. Under UK takeover rules, Sycamore must submit a bid or walk away by 5pm on 15 April.

• 25 March 2022 – Sycamore submits a formal bid to buy Ted Baker with an offer of 130p per share, totalling £250m.

• A few days later, Sycamore sees a second bid of £253.8m rejected.

• 4 April 2022 – Sycamore reveals third approach for Ted Baker although specific figures are not released. Ted Baker board confirms it is willing to sell the business if terms and financials are met. The Ted Baker share price closed up 14% after news of the third offer broke.

• 13 April 2022 – Ted Baker confirms Sycamore will take part in the formal sale process it initiated a week prior after Sycamore’s initial bids.

Current state of play

The Ted Baker share price has been on a downward trajectory for some years. The pandemic did not help. As I write, the shares are trading for 149p. Year to date, the shares are up 44% from 103p to current levels. The shares have rallied 52% from 98p to current levels.

Let’s take a look at Ted Baker’s performance and recent trading. The past couple of years have been tough. The pandemic took its toll and 2021 results were poor and highlighted Ted Baker’s reliance on its store network. Remember this is a store network ravaged by closures due to the pandemic.

It did release a Q4 and pre-close update in March, before the takeover speculation began. Sales growth of 35% compared to Q4 2021, increasing from 18% reported at Q3 is a significant achievement. There are signs of life still.

I believe Ted Baker faces intense competition from the rise in fast fashion. This could dent future performance and investment viability. Furthermore, macroeconomic factors such as rising costs and supply chain issues are sure to impact performance too. I think this will hinder any recovery.

My verdict

My investing mantra has always been long-term buy and hold. For that reason I’m not going to buy shares in an attempt to turn a quick profit in case Ted Baker is sold. I don’t think the shares will go much higher.

I’m not sure what will happen or if the business will be sold but I will keep a keen eye on developments. If the business is not sold, or Sycamore decides not to press ahead, I expect the Ted Baker share price to fall once more. I still wouldn’t buy shares if the business wasn’t sold as I feel Ted Baker’s recovery could be long and arduous.

The post What’s happening with the Ted Baker share price? appeared first on The Twelfth Magpie.

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Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I think the Brexit factor could be damaging for online estate agent Purplebricks (LSE: PURP), as well as clothing retailer Ted Baker (LSE: TED). I wouldn’t be surprised if both companies issued profit warnings before the year’s out, which is why they’re high on my list of stocks to avoid.

Continuing operations

Purplebricks is scheduled to issue a trading update on 7 November, followed by half-year results on 12 December. Late last year, it lowered its full-year revenue guidance from between £165m and £185m to between £165 and £175m and subsequently slashed it to £130m-£140m two months later. So it’s got form for missing expectations.

The UK and Canada have become the group’s continuing operations, as it’s exited Australia and the US. In the second half of its last financial year (1 November to 30 April), Purplebricks reported UK revenue of £41.8m, down over 13% from H1. Its Canadian business, acquired midway through H1, posted revenue of £14.5m for H2, which I estimate represents zero growth on H1. Annualising the UK and Canada revenue gives £112.6m.

For the current financial year, the City consensus, which I assume is for continuing operations, is revenue of £124.8m. With UK revenue falling 13% over the last reported six months, and Canada flat, I think the company’s going to struggle to meet the £124.8m market expectation.

In July, it said: “Current economic and political uncertainty in the UK means market conditions remain challenging with volumes continuing to trend downwards.” Just this week, Rightmove, in its latest monthly housing market update, reported the “number of sellers coming to market down by 13.5% compared to this time last year.”

In these conditions, I really can’t see Purplebricks doing the double-digit growth on last year’s UK/Canada H2 revenue run-rate that it needs to meet market expectations.

Existential crisis?

The aforementioned EY report revealed not only that 31% of FTSE retailers have warned on profits over the last 12 months, but also that 43% of these were from the apparel sub-sector and that 42% of all companies warning in Q3 had warned in the prior 12 months.

This is statistical double trouble for Ted Baker. As well as being a clothing retailer, it’s already warned on profits once this year (in June).

Interim results three weeks ago made for grim reading, with the company swinging to a loss before tax of £23m on 0.7% lower revenue, and slashing the dividend 56%. The shares fell heavily on the day, but my colleague Kevin Godbold’s review of the results concluded with him seeing “no greater value today than there was apparent yesterday.”

The company reported “significant challenges impacting our sector including weak consumer spending, macro-economic uncertainty, and the accelerating channel shift towards e-commerce.” Worryingly, Ted isn’t benefitting from the channel shift. It reported a 1.3% fall in its e-commerce sales.

I think there’s a high risk of a further profit warning in a trading update pencilled-in for early December. And with net debt of £141m, and borrowing facilities of just £180m, I fear the situation could easily develop into an existential crisis, requiring an equity fundraising.

The post Alert! 2 stocks I think could warn on profits before Christmas appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove and Ted Baker. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Harshly treated

Go back roughly 18 months and fashion/lifestyle retailer Ted Baker (LSE: TED) saw its share price riding high. Since then, a perfect storm of consumer jitters, bad weather, product issues and allegations of ‘forced hugging’ made against (and vehemently denied by) founder and former CEO Ray Kelvin have sent the value of the company crashing. At the close last Friday, the very same shares that were trading around 3,000p back in March 2018 could be yours for just 952p.

I still think the market has been a little too harsh on the company. Ted Baker remains a great brand with solid growth potential overseas and a history of generating high returns on the capital it invests. The recent product licence agreement reached with FTSE 100 clothing stalwart Next is another positive that many seem to have quickly forgotten about. 

That’s not to say I’d throw caution to the wind just yet. Ted reports to the market this Thursday. If there’s more bad news on trading (we’ve already had two profit warnings since February) the share price will likely continue its journey southwards for a while yet. Of course, any glimmer of recovery and the stock could soar.

Should the former be the case, I think this would only increase the likelihood of the company being taken back into private hands, possibly involving Kelvin himself. In the meantime, Ted starts the week valued at just 10 times earnings and yielding 5%. 

Woodford-inspired sell-off

Another small-cap that could turn out to be a great contrarian buy is doorstep lender Morses Club (LSE: MCL). Like Ted Baker, the market minnow’s shares have been on a downward trajectory for a while now, falling by a third in value since March. 

Why the big fall? At least some of this can surely be attributed to Neil Woodford’s decision to offload a proportion of his £13m holding in the company in an effort to raise cash to cope with the huge number of redemptions his flagship Equity Income fund will surely receive when it returns from suspension.

Such is the way the market works, a number of other investors are likely to have followed his lead in order to preserve their capital and not because there’s anything wrong with Morses per se. Indeed, this month’s update stated the company is trading in line with expectations and “continues to make strong progress” on the strategy of diversifying its product portfolio.

On a positive note, this surely gives prospective investors an ideal entry point. The business is now valued at nine times forecast FY20 earnings and has a price-to-earnings-growth (PEG) ratio of 0.5 — far below the 1.0 threshold legendary growth investor Jim Slater said investors should be looking for. The balance sheet looks solid and the stock comes with a massive 6.8% yield.

With concerns the UK economy may slip into recession in the near future, and the consequences this could have for our finances, Morses Club could suddenly find itself in something of a purple patch. 

The post Is this cheap small-cap stock a perfect contrarian buy? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Ted Baker. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Sales soar (again)

Total revenue across all three of the company’s brands rose 39% to 254.3m in Q1.

Interestingly, PrettyLittleThing contributed 44% of this amount (£112.1m) — only slightly less than that achieved by Boohoo’s eponymous brand (£123.5m). Sales at the former jumped 42% compared to the latter’s 27%, demonstrating just how well the company is managing to grow previous acquisitions.

At 153%, the company’s third brand — Nasty Gal — achieved the biggest growth in revenue but still contributed only a small amount (£18.2m). 

Importantly, sales rose in all parts of the world in which Boohoo operates. The UK remains its biggest market, but sales in the Rest of Europe were up 72% to £38.2m and 64% to £51.3m in the USA. 

Taking this into account, I suspect Boohoo may end up beating its guidance on full-year revenue growth of somewhere between 25% and 30%. 

Over the reporting period, the AIM-listed company also purchased the brand and intellectual property assets of online womenswear retailer MissPap for an undisclosed amount. 

Despite this outlay, Boohoo’s finances continue to look rock solid with a net cash position of £194m by the end of May — 29% more than at the same point last year. 

Perhaps the only bit of ‘bad’ news was the slight reduction in gross margin from 55.2% to 55%, which may explain the share price reaction.

As always, however, Boohoo remains an expensive stock to buy, trading on an eye-popping 46 times earnings before today’s figures were announced.

As such, I feel it’s worth reminding Foolish readers that anything less than perfect delivery from new CEO John Lyttle and his team going forward could see the shares hammered.  

Profit warning woes

Whether the high expectations of Boohoo’s investors make it a risky buy or not, no one could argue that today’s numbers weren’t a world away from those released by Ted Baker (LSE: TED) yesterday, as covered by my Foolish colleague Roland Head. 

Like Roland, I do not believe that the departure of founder Ray Kelvin can be blamed for recent trading. I’d bet that most shoppers won’t have heard of him or will have quickly forgotten about the allegations made against him.

I’m also willing to accept bad weather for poor performance in the US, especially as this explanation was used by highly-regarded laser-guided equipment manufacturer Somero Enterprises when it warned on profits last week. 

For me, Ted has simply become another victim of ongoing consumer uncertainty and the move away from the high street — something online-only Boohoo doesn’t need to worry about.

While I continue to believe that the shares will recover, the scale of the fall in earnings has forced me to revise my opinion on how long this will take. Like fellow retailer Superdry, where I have a small position, we’re looking at more than just a few months.

In contrast to Superdry, however, Ted carries a fair bit of debt. The former also benefits from having a highly-motivated returning CEO (and huge shareholder) in the form of Julian Dunkerton, making me slightly more optimistic that it will bounce back first.

As such, Ted remains on my watchlist for now.

The post Revenue rockets at top growth stock Boohoo. Time to buy? appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Superdry and Somero Enterprises, Inc. The Motley Fool UK has recommended boohoo group, Somero Enterprises, Inc., Superdry, and Ted Baker. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Management said tough market conditions and product issues are to blame. But with the shares down by nearly 60% over the last year, investors may be wondering how much more bad news is still in the pipeline.

Here, I want to take a closer look at this former high flyer. Is Ted Baker in serious trouble, or is this a buying opportunity for long-term investors?

What’s gone wrong this time?

Management said consumer uncertainty “in a number of key markets” has led to difficult trading conditions and high levels of discounting this year. Unseasonable weather in North America is also said to have disrupted sales.

But there’s also another issue — the company admits to having faced “some challenges with our Spring/Summer collections.” No details were given, but these problems are said to have been addressed.

The problem for investors is that there’s no indication of how much each of the problems has contributed to today’s profit warning. Underperforming fashion retailers often cite weather or difficult market conditions. But sometimes, the blame lies closer to home.

Blame the old boss – or not?

It’s tempting to say Ted Baker’s problems started with the misconduct allegations in December that led to the resignation of founder Ray Kelvin in March. But in truth, the company was warning of more difficult trading a full 15 months ago.

Back in March 2018, the TED share price peaked at more than 3,200p. A few days later, the firm’s 2017/18 results were issued. These included a warning that “unseasonal weather” had impacted Spring/Summer trading and that conditions were “challenging” in a number of markets.

The shares started falling and had already dropped more than 40% by the time the retailer responded to the allegations made against Kelvin on 3 December 2018. In my view, his problems have had relatively little impact on Ted Baker’s share price. What’s spooked investors is the risk that this long-term growth story may have run into trouble.

Here’s what I think

The problems highlighted in today’s profit warning are remarkably similar to those listed in the firm’s outlook statement 15 months ago.

However, when retailers blame tough competition and bad weather, it sometimes means that they’ve got their product offering wrong. I’m not suggesting that’s the case here, but as outside investors, I think it pays for us to be cautious at this point.

Based on the information in today’s profit warning, I estimate forecast earnings for the current year might now be about 100p per share. With the stock trading around 1,000p, that puts the shares on a forecast price/earnings ratio of about 10, with a forecast dividend yield of 6.5%.

That seems cheap, but I wonder if falling profits could make it hard to justify this year’s forecast 11% dividend hike. I also think that in the absence of any positive commentary, there’s still a real risk that trading will remain poor. I don’t see any rush to buy at this time. For now, I plan to stay on the sidelines and await further news.

The post The Ted Baker share price has crashed: here’s what I’d do now appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Ted Baker. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today, I want to explain why the BT Group (LSE: BT-A) share price looks like a buying opportunity to me at current levels. I’m also going to take a look at a FTSE 250 stock that’s fallen from grace. This business looks very cheap, but the outlook is rather uncertain.

Number crunchers are worried

The BT share price has fallen by more than 50% from its 2015 peak of almost 500p. One of the main reasons for this is the firm’s lack of growth. Even the acquisition of mobile operator EE hasn’t reignited sales growth. Revenue has fallen since 2017, a trend that’s expected to continue this year. As a general rule, if sales are falling, it’s very hard for a company to deliver reliable profit growth.

A second concern is that the group’s financial obligations might force new chief executive Philip Jansen to cut the dividend. Although the group’s net debt of £11.1bn isn’t excessive in itself, it’s more of a concern when added to the group’s £5bn pension deficit and hefty spending commitments.

Why I’ve bought BT

I’ve bought BT shares for my long-term income portfolio. The obvious attraction is the stock’s forecast dividend yield of 6.7%. If the payout isn’t cut, this should provide me with a market-beating cash income.

However, I think there’s a significant risk the payout will be cut, perhaps by one third. This would leave the shares with a yield of about 4.3%, in line with the FTSE 100 average. I’m prepared to accept this risk in exchange for the opportunity to profit from a successful turnaround.

New boss Jansen will issue his first set of results on 9 May. If he’s going to cut the dividend, I’d expect a decision then. We should also find out more about his plans for the firm. I expect a continued focus on cost savings and more cautious spending on sports television, but a surprise change of strategy is possible.

I’ve pencilled that date into my diary. In the meantime, I continue to rate the shares as a buy.

Could this fashion firm unravel?

Fashion/lifestyle retailer Ted Baker (LSE: TED) has a long and successful history of expansion. But the firm’s share price has halved since the start of 2018 amid slowing growth and allegations relating to the conduct of founder Ray Kelvin.

Kelvin denied all allegations of misconduct, but resigned on 4 March. As a result of his departure, the company has decided not to reveal the results of an independent investigation into the allegations against him.

What we do know is that the group’s latest results show underlying pre-tax profit fell by 14.3% to £63m last year, despite a 4.4% rise in sales. This fall in profit margins seems to have been caused by higher levels of discounting in “challenging trading conditions.”

I had assumed that Ted Baker’s mid-market appeal would protect it from the high street meltdown. But now I’m not sure. I’m also concerned about how the company will perform without its founder — Kelvin ran the business for more than 30 years.

The shares look good value on 12 times forecast earnings, with a 4.3% yield. But I’m going to wait until we know more before deciding whether to invest.

The post BT’s share price and 6.5% yield make it my buy of the decade appeared first on The Twelfth Magpie.

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Roland Head owns shares of BT GROUP PLC ORD 5P. The Motley Fool UK has recommended Ted Baker. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

“Very difficult trading conditions”

That’s not to say there weren’t any chinks of light. Despite experiencing what the company described as “very difficult trading conditions,” revenue rose 4.4% to £617.4m over the year to 26 January.

While the UK and Europe still bring in the most sales (£315m), the company also saw a 4.7% rise in the US to £125.7m.

Like many in the retail clothing sector, Ted also saw decent 20.4% growth online to £121.7m, underlining just how important this will be for the company going forward. Wholesale sales also rose — by 4.8% — to £156.5m. 

Over the year, the company opened new stores and outlets (five of the former in the US) and acquired No Ordinary Shoes Ltd. According to interim CEO Lindsay Page, the investments made over the period will ensure that Ted “remains well positioned for long term development” and that management is “focussed on identifying opportunities in the evolving retail market to further expand the brand.”

Unfortunately, all this couldn’t save Ted Baker from reporting a huge 26% reduction in pre-tax profit to £50.9m. This was attributed to widespread discounting in the sector, unseasonable weather, and consumer uncertainty (relating to Brexit). 

While this might not have come as much of a surprise — today’s numbers were in line with those mentioned in February’s profit warning — the initial 5% fall to the share price this morning does suggest many suspect tough times will continue. 

With so much negativity around, can the shares be considered a decent contrarian bet? I’d be inclined to say ‘yes’.

Pain is temporary

Before this morning, the stock changed hands for 15 times forecast earnings. That’s clearly a lot less than the average P/E over the last five years (26), according to data from Stockopedia, suggesting that Ted Baker is very much in bargain territory at the moment. 

What’s more, it looks like the retailer is doing what it can to limit the damage following its former CEO’s alleged practice of ‘forced hugging’ came to light in December through the launch of an online petition.

Commenting today, executive chairman David Bernstein reflected that the mid-cap was “determined to learn lessons from what has happened” and that “appropriate changes” would be made.

A 2.5% reduction in the total dividend may feel like pouring salt on the wound, but this doesn’t feel unreasonable given the circumstances. A total cash return of 58.8p per share for the year gives a trailing yield of almost 3.6% based on the share price at the time of writing. That’s clearly less than you can get elsewhere in the market but still adequate compensation while management concentrates on protecting and then revitalising the brand that has allowed it to generate consistently excellent returns on capital over the years.

So, while the short-term picture isn’t rosy (and further share price falls can’t be ruled out), I suspect the company will now be starting to hit the watchlists of many value and/or quality-focused investors. 

If you’re blessed with patience, Ted Baker is certainly worth a closer look, in my opinion. 

The post Why I think this scandal-hit FTSE 250 growth stock is now a tempting contrarian buy appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Ted Baker. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

This latest fall means the stock has lost more than 40% of its value over the last year. Today, I want to ask whether Ted Baker is in trouble, or if smart long-term investors should be buying at current prices.

One-off problems?

In a statement on Wednesday, the lifestyle retailer said that adjusted pre-tax profit is expected to be about £63m this year. That’s a fall of 14% from last year’s figure of £73.5m. Analysts’ had previously expected Ted’s profits to be broadly unchanged this year.

The company noted that volatile exchange rates have resulted in a £2.5m loss from currency translation. A further £7.5m of charges have been identified relating to stock write-downs and additional product costs this year.

Management also said all of these items are “non-cash”, which means they shouldn’t affect the company’s cash flow or debt levels. As a result, I don’t expect any change to the firm’s dividend policy.

However, the company’s financial year ended on 26 January, so this profit warning has come quite late, in my view. I’d have thought some of these factors should have been known about sooner than this.

Buy, sell or hold?

Ted Baker shareholders are also still waiting for clarification about the future of the group’s founder and chief executive Ray Kelvin.

He’s currently on leave of absence while the firm investigates allegations of misconduct made against him. Although my view is that the Ted Baker brand is probably big enough to survive any fallout from these allegations, this situation still carries some risk.

Historically, this business has been very profitable. Strong cash generation has supported years of continuous growth with only modest amounts of debt. However, today’s profit warning suggests to me the group’s profitability may have weakened over the last year.

After today’s fall, I estimate the shares are trading on roughly 15 times forecast earnings, with a 3.6% dividend yield. I’m going to reserve judgement until the firm publishes its full results in March. For now, I’d hold.

An overlooked gem?

Daily Mail-owner Daily Mail and General Trust (LSE: DMGT) is an unusual business that’s a little hard to understand. I’ve been guilty of overlooking this firm in the past, but recent news suggests to me it might be worth a closer look.

Last year saw the group receive a £642m cash windfall from the sale of its stake in Zoopla-owner ZPG. This left DMGT with a £255m net cash balance and a number of other profitable operations.

Although it’s best known for the Daily Mail, the company also owns stakes in a number of business-to-business information services and runs trade events. These include a 49% stake in Euromoney Institutional Investor, which is a FTSE 250 company in its own right.

Recent press reports have suggested that DMGT might sell its stake in Euromoney, which could be worth about £700m. In the meantime, the group recently reported a 2% rise in first-quarter revenue and confirmed is previous guidance for the full year.

City forecasts put the stock on a 2019 price/earnings ratio of 17, with a 3.8% dividend yield. I feel the shares could offer decent value at this level.

The post This is what I’d do about the Ted Baker share price right now appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
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• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Ted Baker. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Back in summer 2015, the shares traded at twice their current level, hitting a high of 594p. Since then, the retailer’s underlying profits have fallen by about 10%. But the group still retains many of the characteristics that led shareholders to pay twice as much for its stock four years ago.

Of course, there are problems at M&S. But market sentiment can change fast when things start to improve. The question is how long this might take (and whether it’s even possible)?

Early signs of progress?

Thursday’s third-quarter trading figures for the three months to 29 December show that sales are continuing to fall. Like-for-like food sales were down by 2.1%, while like-for-like sales in Clothing & Home were 2.4% lower.

However, it seems fair to assume that some of this decline was caused by mild weather in November, which blighted performances for retailers who’d stocked up with winter clothing during this period.

There were some positives. Online sales rose by 14% during the festive period, helping to offset some of the sales lost as a result of store closures. In Food, the company says that there have been “early signs of volume improvement,” following price cuts and product updates.

Should you be buying M&S?

To be fair, 2018/19 was always going to be a difficult period. Chairman Archie Norman and boss Steve Rowe have made it clear that their turnaround plan will take several years to deliver results.

Financial guidance for the year to 31 March has been left unchanged, and the shares were also trading flat after Thursday’s figures were released.

As a potential investor, I’m tempted by the turnaround potential here. I don’t think the shares will double in the next year, but the modest forecast P/E of 11 leaves room for improvement. And the 6.8% dividend yield is still covered by free cash flow, which remains strong. For income investors who can accept the risk of a dividend cut, I think M&S remains a potential buy.

Up by 30% in one day

Back in November, I said that I’d prefer to take a punt on a rebound at Ted Baker (LSE: TED) than invest in Marks and Spencer.

My view was that alleged misconduct involving Ted’s founder Ray Kelvin was unlikely to tarnish the firm’s wider brand. It seems I was right. A strong set of Christmas sales figures has sent the stock up by more than 20% so far this week.

We know now that customers are still shopping at Ted stores — and increasingly, online. But despite this week’s rebound, the mid-market fashion and lifestyle retailer’s shares are still worth nearly 35% less than they were one year ago. Is this a buying opportunity?

I see long-term quality

Yesterday’s update confirmed that profit margins have stayed in line with the group’s forecasts this year. This is one of the key elements of the investment case here, in my view.

The group’s operating margin of 11.7%, and return on capital employed of 25%, make it one of a handful of UK retailers that can generate above-average returns.

Although the shares are not as cheap as they were a week ago, I believe they still rate as a long-term buy at around 2,000p.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Ted Baker. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

In the market too, many investors have the theory that it’s better to sell first and ask questions later. While weak consumer confidence has no doubt contributed, the stock fell 22% in just two days in December as an external investigation was announced. From the highs hit in March last year, the company’s value had declined 50% before markets opened this morning. 

However, today’s 12% jump in the share price in response to its latest trading update could signal a turn in sentiment.

Expectations met

The numbers were certainly far from bad. Retail sales rose 10.5% once foreign exchange fluctuations were taken into account in the five weeks to 5 January. Internet sales fared even better, growing 17.7% and now account for a little over a quarter of total sales.

In contrast to other retailers, gross margins for the full year were also still in line with expectations, leading management to state that the numbers for 2018/19 should be as predicted.  

In other news, the company confirmed that it has completed its acquisition of No Ordinary Shoes at the beginning of 2019 for £20.3m. Once integrated, this purchase is expected to be earnings-enhancing from the next financial year and represents “an exciting opportunity to drive further growth” in its footwear business. 

Somewhat understandably, the firm was more tight-lipped on the ongoing investigation, stating only that a further update would be released “in due course“. 

Right now, it’s hard to comment on Ted’s outlook with any real certainty. Based on today’s figures, however, I’m cautiously optimistic on it being able to overcome its current difficulties as long as its board continues to act swiftly and decisively. 

Trading on almost 13 times forecast earnings before this morning, the shares were clearly more attractively priced than they used to be. A projected total dividend of 63.6p per share translates to a yield of 3.5%. Throw in consistently high operating margins and returns on capital and I think the stock could offer quite a bit of upside for patient investors. 

A safer buy?

Of course, there are other options available. FTSE 100 juggernaut Burberry (LSE: BRBY) would be top of my list of alternatives, despite being more expensive to buy than Ted. 

Right now, you can pick up the shares for 21 times earnings. That might seem a lot, particularly given that the prices of other stocks have dipped so much over recent months, but for a such a strong brand that still has great growth potential (particularly in Asian markets), I think it can be justified. 

Like Ted, Burberry’s management has been able to achieve great returns on the money it invests for many years. I also like the fact that its finances are in excellent shape with the company boasting a net cash position of almost £650m.

With no scandals overshadowing trading, Burberry appears a far less risky buy, even though it will never be immune to a (perhaps Brexit-related) general market sell-off.

The post Should investors pile in to battered FTSE 250 growth stock Ted Baker after today’s news? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry and Ted Baker. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.