Is this why Surfstitch Group Ltd shares have gone gangbusters today?

Source: iStock

The shares of embattled retailer Surfstitch Group Ltd (ASX: SRF) are one of the best performers on the market today. In morning trade its shares rocketed higher by a massive 30% to 17 cents before dropping back a touch.

This is now the second day in a row of strong returns for its shareholders, with Surfstitch’s share price rebounding strongly from Tuesday’s heavy sell off with a 25% gain yesterday.

But despite these strong gains Surfstitch’s shares are still down over 33% since it reported a full year loss of $155 million for FY 2016 on Tuesday. That loss was largely the result of $100 million worth of impairments and the underwhelming operating performance of the company’s retail operations.

Whilst these recent gains are likely to be attributable to bargain hunters and short-term traders jumping in and driving the share price higher, back in March the company did acknowledge that it could be subject to an acquisition from its former CEO Justin Cameron.

At the time management stated that: “The Company understands Mr Cameron is pursuing an opportunity relating to a potential acquisition of the company in conjunction with private equity”.

Nothing ever transpired, but considering the collapse in its share price now would be as opportune a time as ever to launch a takeover in my opinion. Not that I personally see anything here worthy of an acquisition unfortunately.

Surfstitch’s management has forecast for more of the same in FY 2017. In its outlook for next year management has forecast single-digit sales growth with an underlying EBITDA loss of $2 million to $3 million.

As a result, much like fellow struggling surfwear retailer Billabong International Limited (ASX: BBG), I just don’t see any value in Surfstitch right now unfortunately and would be quite surprised to see a takeover offer on the table.

I believe investors looking for exposure to the retail sector would be far better off taking a closer look at Premier Investments Limited (ASX: PMV) instead. This is a company with strong brands in Smiggle and Peter Alexander, as well as equally strong growth prospects.

Alternatively, these three new breed blue chips could potentially be even better investments.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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