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5 reasons why Surfstitch Group Ltd shares are soaring

Since its initial public offering on 16 December 2014, Surfstitch Group Ltd (ASX: SRF) has seen the share price lift by almost a 100 percent in only 11 months.

The online retailer of surf boards, action sports and other products related to surfing, was founded in 2007 in a garage on Sydney’s northern beaches. Since then it has grown into an international online retailer selling more than 20,000 products and 600 plus brands.

Here are five reasons why the Surfstitch share price is soaring.

1. Passionate Management

The founders of Surfstitch, Lex Pedersen, and Justin Cameron are still running the company. The founders’ vigour and passion is evident from the fact that in only nine years they have taken the company from its humble beginning in a garage to an international retailer. And that is not all; Surfstitch is aiming to reach $1 billion in sales over the next five years, from the current $199.4 million for the last financial year ending 30 June, 2015.

2. Strong Sales Growth

Sales continue to grow strongly, with the last financial year recording a 30% growth in sales compared to the previous year. As a global company, sales growth is unanimous across the entire global regions, with Asia Pacific rising by 44%, Europe by 22%, and North America by 17%.

3. Media Content Driven Strategy

The acquisition of two media companies related to surfing is part of a broader strategy to drive sales from the website. Magicseaweed and Stab, one based in U.K and the other in North America and Australia are leading surf content networks targeting audiences involved in surfing and action sports.

4. Curating a Global Platform

To accelerate growth Surfstitch is creating a global platform with a single ecommerce brand with multilingual and multicurrency capabilities. Globally aligned technology, logistics and inventory platforms will allow Surfstitch to sell products to more than 130 countries, with infrastructure based in Australia, U.K. and North America.

5. Strong profit growth

As an old saying goes in the retail industry, only making strong sales is not enough, but equally important is to make a healthy profit. Surfstitch’s  gross profit margin for the financial year ending June 30 2014 was 43.4%, which increased by 2.51% to 45.9% for the most recent financial year ending June 30, 2015. A healthy profit margin and strong growth momentum has prompted Surfstitch to forecast a 100% growth in Earnings before Interest Tax Depreciation and Amortisation (EBITDA) for the upcoming 2016 financial year.

Foolish takeaway

Surfstitch is growing strongly as it continues to capture the online surfing retail business, by offering a wide choice of products. The link with the media to bring more customers to the website is a prudent strategy, which has been used successfully by U.S. online retail giant, Inc. The founders’ passion is visible for their business, and they continue to aim higher. Therefore, the share price is likely to rise for a few more years, and this share is a must add to a Foolish investor’s watchlist.

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Motley Fool contributor Qaiser Malik has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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