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3 reasons for hope for Surfstitch Group Ltd shareholders

The Surfstitch Group Ltd (ASX: SRF) share price has plunged another 9% today, losing 4.3 cents to trade around 41.7 cents in mid-afternoon trading.

The surf, ski and skate wear retailer has seen its share price plunge 23% in the past month and 78% since the start of this year, thanks to a multitude of issues.

CEO Justin Cameron resigned via an email to his chairman in March 2016, citing the potential for him to make a bid for the company in conjunction with private equity. So far we’ve seen no bids from anyone and haven’t heard a word from Mr Cameron.

That came just weeks after the company announced its first half results, but declined to provide full year earnings guidance, citing flexibility to invest in online content as it saw fit to boost sales. The market didn’t take kindly to that at all, sending the share price down 20% in one day.

Then the company announced a shock downgrade in early May – although those selling out in February probably saw that coming.

But there are reasons for hope for existing investors.

  1. Revenue growth is still strong – its expenses that are rising. At the latest half year results, revenues were up 40% compared to the previous half year.
  2. Lex Pedersen, the co-founder of Surfstitch with Mr Cameron is still at the head of the company and the company also announced the appointment of Justin Stone as joint CEO with Mr Pedersen. Mr Stone was the founder of another Surfstitch company – Surfdome.
  3. The falls in the share price make it an attractive takeover target. The lower the price falls, the more chance there is that a bid arises for Surfstitch – whether it’s backed by Mr Cameron or not.

In fact, a takeover of Surfstitch followed by a few years of growing its online, digital offerings away from the glare of the sharemarket and clamouring shareholders would be a perfect private equity play.

Foolish takeaway

It’s often darkest before daybreak could spell the truth for SurfStitch shareholders willing to hang on, although there are probably not that many left these days.

Forget Surfstitch when you can get GROWING dividends.

This "dirt cheap" company. is growing like gangbusters, and trading on a fat dividend yield, FULLY FRANKED. With interest rates set to stay at these low levels for years to come, for income-hungry investors, including SMSFs, this ASX company could be the "Holy Grail" of dividend plays for 2016. Click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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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