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BPC is pleased to initiate a BUY recommendation on Step One Clothing (ASX:STP). This historically fast-growing, cash-generating D2C retailer specialising in sustainably made bamboo underwear has been sold off after navigating a tough retail environment in FY25, with growth and profitability under pressure. Our research suggests that STP has been oversold and investors can gain ownership at very attractive levels. Furthermore, with the monetary cycle easing, the stock is offering a free option on renewed growth in the future, which could see material capital appreciation.
Investor Highlights
- Exceptional profitability in this asset-light D2C online retailer with +80% historical gross profit margins and ROE of ~25% in FY24.
- Strong balance sheet with zero debt and $43.8m in cash.
- Founder-led business with very high inside ownership and a strategy focussed on profitable growth.
- A slow-down in growth and gross margin compression in H1 FY25 has put the share price on sale at 4.2x FY25E EV/EBIT and 10.7x P/E.
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