Last week Super Retail Group Limited (ASX: SUL) provided investors a trading update that proved it has real staying power.
Super Retail Group ("SRG") is the owner of many well-known retail brands including Supercheap Auto, BCF, Goldcross, Ray's Outdoors, Rebel Sport and AMART. It is by far the most diverse retail stock on the ASX and has a good mixture of stores, which are divided into Auto, Leisure and Sports.
The results released last week showed promise for investors, who currently value the stock at an expensive $12.98 and a P/E ratio of 21.94. It's not surprising investors have jumped on board this seemingly one way ticket since its share price has skyrocketed an amazing 90% this past year. Last year media outlets were signalling the end of retail stocks but SRG has proved them wrong.
Investors will be laughing all the way to the bank – finding this gem 12 months ago at $6.72 has proven to be a bargain. However, although its Auto, Leisure and Sports divisions have gone up 5.1%, 3% and 7.8% respectively this past year, is that enough to justify a 90% increase in value? I don't think so.
Similarly, JB Hi-Fi (ASX: JBH) and Harvey Norman (ASX: HVN) have also increased 93% and 52.5% which says to me that either: A, the companies were undervalued, B, the companies are overvalued, or C, something worse. If we turn the clock back 12 months, no-one wanted anything to do with retail stocks but since interest rates are low and people are beginning to forget about the GFC, everyone has dived back in.
Foolish takeaway
No matter what you say or do, being a successful investor requires you to buy stocks when they are cheap and sell stocks when they get overpriced. This past year even the stocks that many consider 'dogs' are still doing well, but, remember it's important not to feed them too much because one day they could turn around and bite you.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Owen Raszkiewicz does not own shares in any of the mentioned companies.
