Change to Online Retailing Will be Crucial

Brown (N) Group

I had been looking at this share for a few weeks before taking the plunge to buy about a month ago and whilst its early days things have been going well so far (26.3% gain). Hopefully this will turn out to be a good example of why/how a straight forward investment process can help identify potential winners (with only a month gone potential is really what it is!!).

Whilst I always undertake detailed analysis I use the data below to get a handle of where the share is in relation to history, looking at some key price ratios; to get to this stage I need to have studied financial security – which I was happy with.

Going into 2013/2014 the share was clearly trading well above its average price ratios from previous years and the market cap was over double that of three years earlier and the dividend yield was heading down to levels last seen before the shares last big decline in 2006/2007.

The fall in earnings and share price that followed into 2015 meant that it appeared on my radar, particularly with a PE10 of less than 16x and attractive dividend yield; a glance at the table to the top right showed many ratios well below their ten year average. This coupled with the fact that the firm is transforming from a mail order service to a potentially more profitable “digital first strategy” that has shown early promise suggests that positive earnings and dividend forecasts may come to fruition and help the share price further.

 It remains to be seen what happens moving forwards but early indications are good.

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