ASX small-cap stock rockets 25% on 'another period of profitable growth'

Why is this small cap getting a lot of attention on Wednesday?

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Step One Clothing Ltd (ASX: STP) shares are catching the eye on Wednesday morning.

At the time of writing, the ASX small cap stock is up a massive 25% to $1.82.

What's going on with this ASX small cap stock?

Investors have been buying the direct-to-consumer online underwear retailer's shares this morning after it released a strong trading update.

This will no doubt be a welcome relief to shareholders that have endured some hard times since Step One's IPO in 2021.

After listing at $1.53 per share in November 2021, the company's shares climbed as high as $3.00 in the first few weeks. However, it wasn't too long until its shares were down in the low 20s, losing over 90% of their value from top to bottom.

Investors were selling the ASX small cap stock down following a sudden deterioration in its performance caused by challenging trading conditions.

However, it seems that the company has found its legs again and is predicting strong growth in FY 2024.

Strong FY 2024 growth

According to a trading update released this morning, it expects to report revenue of $84 million in FY 2024. This is up 29% on FY 2023's revenue and 16.3% on what it recorded in FY 2022.

Getting investors even more excited, though, was its earnings growth. Management expects its earnings before interest, tax, depreciation, and amortisation (EBITDA) to increase at the even quicker rate of 42% year on year to $17 million.

This is now higher than the prospectus forecast of $15.1 million for FY 2022, which it previously failed to achieve. Better late than never.

No further financial information was provided by the ASX small cap stock. So, investors will have to wait and see what the above means for net profit and dividends when it releases its full-year results next month. This release is expected to be made on 21 August.

Step One's founder and CEO, Greg Taylor, was pleased with the company's performance in FY 2024 and highlights its expanding customer base. He said:

I am pleased to report another period of profitable growth for Step One. Our high-quality sustainable innerwear products, in-house marketing capabilities and brand ownership continue to resonate well with customers. With a strong financial position, we are well positioned to continue expanding our customer base, establish new retail partnerships and grow our brand presence globally. I remain very confident that Step One is in a strong position to continue its profitable growth.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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