MENU

Why the Accent Group Ltd share price is tumbling today

Shares in footwear retailer Accent Group Ltd (ASX: AX1) plunged 11% to $1.43 this morning amid some heavy volume with the company informing the market that 36.8 million shares previously held in escrow as part payment for the Hype DC acquisition will be released on August 4 2018.

Sometimes shares held in escrow as part payment for an acquisition may be related to ongoing performance hurdles and whether they should be included as part of a company’s market value therefore is up for debate, although today’s share price falls suggests the news has caught some in the market by surprise.

At other times the terms of an acquisition deal may stipulate that shares (offered as part payment) will be released regardless of the performance of the acquired business, although they must be held for a minimum escrow period (2 years in this case) in order to prevent the payees immediately selling on market.

Placing the shares in escrow for a minimum time frame also aligns the interests of the payees with the wider business that they now effectively have an ownership interest in.

Accent Group (formerly RCG Corp) has seen its share price nearly double over the past year on the back of a strong interim profit report last February and receding fears as to the impact on sales of cut-price online competitor Amazon.com, among others, in Australia.

The group owns the slightly struggling Athlete’s Foot brand in Australia, alongside exclusive rights to distribute the popular CAT, Dr Martens and Vans shoe brands.

However the jewels in its crown are the high-performing concept HypeDC and Platypus streetwear stores that belt out deafening rap and dance music presumably to egg shoppers on into spending even more money.

The group is reportedly planning on taking its Platypus store concept to the shopping hub of Singapore and elsewhere in south east Asia, which potentially provides another growth leg over the years ahead.

Foolish takeaway

It’s no secret that Australian retailers like Accent, JB Hi-Fi Limited (ASX: JBH) and Myer Holdings Ltd (ASX: MYR) are in a tough space largely due to macro conditions that include flat wages growth. As such discretionary retail is a sector full of value traps I would suggest investors tread carefully around.

However, I continue to like the outlook for Accent Group and its management team has a strong track record of delivering value for shareholders.

At $1.41 the stock is around fair value and I would rate it a hold ahead of its full year profit report to be handed in next month.

The Disruptors: 3 Revolutionary Aussie Companies to Back for 2018

We’re living in one of the most exciting times in investing history. Innovation and a booming culture of entrepreneurship are constantly creating new companies with the potential to make forward-thinking investors very rich. Now more than ever, one small, smart investment could make a huge difference to your wealth.

That’s why at The Motley Fool we’ve been scrutinizing the ASX to uncover the kinds of companies that we believe could turn into the next Atlassian.

We’ve found three exciting companies that we believe re poised to perform in the new year. Click here to uncover these ideas!

Motley Fool contributor Tom Richardson owns shares in Accent Group and Amazon Inc.

You can find Tom on Twitter @tommyr345

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 Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!