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You share FTSE 250 boot maker Dr. Martens (LSE:DOCS) is down 83% since the company joined the stock market in 2021. But the stock has been showing signs of health recently.
The stock price rose sharply at the end of last year. And with a new CEO taking over this month, could 2025 be the year of a business recovery?
Problems
Dr. Martens was facing two problems. The first is weak demand in the US and the second is the difficulty of switching from selling through wholesalers to selling directly to consumers.
The goal was to increase margins, but what kept rising were the firm’s costs. Inventory management has been a challenge and this is reflected in the company’s balance sheet.
This difficulty is normal. Nike had the same problems, which is why the share price has fallen since the beginning of 2022.
Dr. Martens, however, has been working to address both of these issues. Although it can’t do much about the consumer space, it has been revamping its marketing strategy to increase demand.
The business also pulled back on purchases to reduce its inventory levels. And its total debt has fallen by 27% over the past 12 months.
In short, positive signs are beginning to show in the company’s plans to renew itself. The stock has started to rise as a result, but is this a false dawn or is there more to come in 2025?
Outlook
In terms of predicting the recovery of Dr Martens shares in 2025, there are two questions. The first is what the business will do and the second is how investors will react to this.
Although the company has done a good job with its balance sheet and expenses, it is losing money. And while the dividend has been cut, even this may not be strong unless things change.
The problem is sales – the latest update reported revenue down 18% and this will have to change for the stock to be a viable investment. But 2025 could be a challenging year for this.
The threat of tariffs on US imports looks like the kind of thing that could dampen consumer demand. And that will make arresting sales declines a challenge.
So I am aware of the outlook for Dr. Martens shares in 2025. How investors will react to the company’s news is hard to predict, but the business still has a long way to go.
The longer it takes for a company’s problems to be resolved, the more the stock looks like a value trap. And to some extent, this is out of the hands of the company.
2025 recovery?
Sometimes, the best time to buy stocks is when everything seems to be going wrong. Any signs of improvement could cause the share price to rise.
If signs of recovery don’t come, however, the stock could become a price trap. Even if it eventually recovers, the cost of waiting makes it a bad investment.
Next for Dr. Martens is a recovery in sales. But without a solid reason to think this is imminent, I’m not backing this one for a 2025 return.
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