The Motley Fool

Why this stock is up 31% for the year

In the last 12 months, shares of Pacific Brands (ASX: PBG) have risen 31%, versus a 16% rise in the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO). What’s behind this impressive outperformance?

Mr. Market front-running the turnaround

With the run-up in the stock in the past year, it seems Mr. Market has been front-running the company’s turnaround.

Pacific Brands is the company behind iconic Australian underwear brand Bonds as well as Berlei, which the company distributes through wholesale channels such as David Jones (ASX: DJS) and Myer (ASX: MYR). It also sells in its own retail and online stores.

But the last several years have seen Pacific Brands’ topline fall from $2.1 billion in 2008 to $1.3 billion in 2012, while net income fell from $117 million to a loss of about $450 million (the company wrote down $500 million worth of goodwill).

For the most recent half, sales fell 6.6% but net profits after tax increased 8.9% and earnings per share grew 10% (before significant items in the previous corresponding period) and the company raised its interim dividend by 25%.

Plans to return to growth

This morning, the company released a presentation detailing its plan to return to growth, including expanding its direct-to-consumer channels and a focus on international expansion. As the company points out, Pacific Brands has had a largely Australia-centric business, “with international markets largely untested.”

However, the company did not release guidance or a trading update, so it’s difficult to determine exactly what the full year results will hold.

Looking for a few more solid ideas? Two of Australia’s most promising small companies are still flying under the radar. Discover these two exciting ASX investments in our brand-new special FREE report, “2 Small Cap Superstars”. Click here now, it’s free!

More reading

Motley Fool contributor Catherine Baab-Muguira owns no shares in any company mentioned in this article.

FREE REPORT: Five Cheap and Good Stocks to Buy now…

Our Motley Fool experts have FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.7% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.