Why Godfreys Group Ltd shares rocketed 33% in five days

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They say timing is everything and certainly when it comes to investing, managing to time your entry into a stock can certainly make a world of difference.

Consider vacuum retailer Godfreys Group Ltd (ASX: GFY) for instance…

Investors who chose to pile in to the initial public offer (IPO) at a float price of $2.75 are nursing some serious losses; it’s an even bigger loss being pondered by many investors who bought on-market post-IPO, as the stock spent the first 10 months of its short listed life trading above the $2.75 level.

Then things changed!

Since last September the stock began drifting and then crashing lower, hitting a low of 78 cents at the beginning of February.

Since touching that low the stock has bounced and bounced hard with the share price soaring 33% in the past five days inclusive of a 5.5% gain on Thursday when the company reported its interim results.

Here are the key points from the profit announcement:

  • Total sales of $90.6 million
  • Comparable store sales down 5.2% due to the previously flagged poor execution of Godfreys’ response to key market trends
  • Underlying net profit after tax (NPAT) of $4.5 million
  • Underlying earnings per share of 11.06 cents per share (cps)
  • Interim dividend declared of 7.5 cps, representing 68% of underlying NPAT
  • During the six months to December 25 the company opened 11 new stores and converted four franchise stores to company-owned stores, taking total store numbers to 223

What now?

It’s certainly been a mixed bag of performances from the retail sector recently with the failure of Dick Smith Holdings Ltd (ASX: DSH) in stark contrast to the strong results from JB Hi-Fi Limited (ASX: JBH).

Godfreys’ management has provided guidance for a full year underlying NPAT of between $8.5 million and $9.2 million, with an additional four new stores to be opened. With long-term debt on the balance sheet of $20 million and a market capitalisation of approximately $46 million this stock is bound to entice some investors for value.

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Motley Fool contributor Tim McArthur 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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