The idea of doubling my money as an investor is an exciting thought. Well, City analysts think I could do just that if I bought shares of this FTSE stock.
Let’s take a look to see if I should add the stock to my portfolio.
A turnaround FTSE stock
The stock in question is fashion designer Ted Baker (LSE: TED). It’s been a terrible investment over the past five years as the share price has crashed from over 3,200p to 86p today. That’s a 97%+ fall!
But City analysts must be expecting a turnaround. The consensus share price forecast is 233p, which would be a huge 171% return from here.
With any turnaround, it’s important to find out what went wrong first. Then to understand if the situation has improved.
Back in 2018, Ted Baker warned that trading was becoming “challenging” across its global markets. Unfortunately for the company, trading continued to underperform expectations in the following years. CEO and founder Ray Kelvin also resigned in 2019 due to allegations of misconduct amidst the company’s poor trading. It also overstated the value of its inventory held on its balance sheet. This is always a huge warning sign as a potential investor, because if I can’t trust the numbers on the financial statements, I can’t value the company accurately.
Ted Baker has had a full refresh of its leadership team since these issues though. A new CEO and CFO have taken charge, with new board members too. The management team also released a strategic update showing how they aim to tackle the issues at the company. This included things like cost reviews, and focusing on e-commerce growth.
There was a clear mismanagement issue at Ted Baker in recent years. As such, I’m more optimistic about the company’s prospects today now there’s new team in charge. The strategic update also looked sensible to my mind.
Could I double my money?
I need to review the most recent results before making an investment decision. Ted Baker released its interim results for the period ended 14 August 2021 at the end of last year. There were some positives to take from them.
For one, revenue grew almost 18% over the same period in 2020. This is a good sign, and shows the turnaround could well be under way. The CEO also said there were “encouraging early reactions to the new collection”. There’s clearly still demand for the Ted Baker brand and this could be improving.
It wasn’t all good though. The company remains heavily loss-making. Also, the cash balance fell by an alarming £48m over the 12 months up to the period the results covered. However, Ted Baker did say this was so it had plenty of stock for the crucial Black Friday and Christmas period.
I can see why analysts are forecasting a more than doubling of the share price. Things look to be improving, and I’m more confident now that a new team is in place.
But I still see some risks ahead and I’m aware that such forecasts can often fall flat. I’m going to see how the company performed over the key festive period first, particularly due to the recent cash spend on new inventory. So, I’m keeping this FTSE stock on my watchlist for now.
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Dan Appleby has no position in any of the shares mentioned. The Motley Fool UK 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.
This post was originally published on Motley Fool
