The ASX dividend stock Step One Clothing Ltd (ASX: STP) has drifted lower over the last several weeks, as the chart below shows. I'm going to examine whether it's the right time to invest in this business.
Step One describes itself as a leading direct-to-consumer online retailer of innerwear. It says its underwear is "high quality, organically grown and certified, sustainable, and ethically manufactured".
The Step One share price's decline of more than 20% started around the time that Step One founder and CEO Greg Taylor sold 313,500 shares to bring James Spithill (a winner of two Americas Cups) onto the share register.
Is this a good time to invest in the ASX dividend stock?
I love investing in growing ASX dividend shares that are priced cheaper, just like we're seeing with Step One.
The FY24 first-half result showed a number of good financial metrics. Revenue grew by 25.5% to $45.1 million, while earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 35.6% to $10.1 million.
The gross profit margin grew from 80.7% to 81.2%, and the average order value (AOV) increased by 4.7% to $94.47.
Step One's balance sheet is in a good state, with a closing cash balance of $43.9 million and no debt.
One of the most compelling things about the business's future is that it's growing rapidly in the UK and the US, which have much bigger populations than Australia (where it generates most of its revenue). HY24 UK revenue increased 38% to $14.6 million, and US revenue jumped 256% to $4.1 million.
If Step One can keep growing in the UK and US, then the business looks like it has a very exciting future.
The company is working on a number of things in FY24, including growing the women's line, expanding its partnerships with retailers and other organisations, taking the women's lines to the US, investing in its capabilities and products, and continuing to improve the customer experience.
ASX dividend stock valuation and yield
The Step One share price is still up more than 300% over the past year, so it's not exactly trading at a 52-week low.
However, the company is at a reasonable valuation in my opinion, considering how much global potential it has. It's valued at 21x FY25's estimated earnings with a forecast FY25 grossed-up dividend yield of 6.7%.
This seems like the type of business that can deliver significant economies of scale benefits. I'm expecting profit margins to grow over the longer term. I also think Step One can easily expand to other countries, such as Canada, giving it a longer growth runway.
I think the ASX dividend stock is a good long-term buy at this level.
