Why was this removed for breaking rule 7?

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Rule 7 stocks which include OTC, microcaps, pump & dumps, low vol pumps and SPACs.

Any of the following criteria is considered breaking the rule:

• Typically trades under $5 or previously traded under $5 within 6 months
• Below $300 million market cap or previously traded under 300m before the pump within 6 months
• Most OTC / PINK stocks
• Usually has missed reporting/filings; no auditing or odd auditing issues
• Low volume or wide bid/ask spread

• Doesn't have any big name institutional holders

  • If the biggest institutional holder is a stock promoter then they don't count as an institutional holder

• All SPACs

You can learn more about rule #7 here: https://www.reddit.com/r/stocks/wiki/pennystocks

This doesn't fall under any of the criteria, a lot of London Stock Exchange stocks trades under £5 because it uses pence instead of pound (GBp vs GBP) so it's represented as 136p. Doc Marten has a market cap of 1.385 Billion…

Below is the original post:

This is not financial advice, please do your own research.

Doc Martens

Listed on the London Stock Exchange

Current price: 139p (£1.39)

Please read this post (written by u/Rickna01 if you haven't already for some background info on the company

https://www.reddit.com/r/ValueInvesting/comments/o92pbw/dr_martens_docs_long_thesis/

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Past trends

Dr. Martens has shown broad-based growth across all channels and geographies. In the period from FY17 to FY21 ecommerce, wholesale and retail channel revenues grew at a CAGR of 49%, 5% and 20% respectively, while the Americas, EMEA and APAC regions grew revenue at a CAGR of 24%, 23% and 15% respectively. The business also has strong cash flow conversion, reflecting a capital-efficient growth model.

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Past Three Years:

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(in millions)	2020	2021	2022
Rev	672.2	773	908.3
EBIDTA	184.5	224.2	263
EBIDTA % of Rev	27.4%	29%	29%
Exceptional Items	-12	-80.5	0
Profit Before Tax	101	70.9	214.3
Net Income	74.8	34.7	181.2
Net Income as % of Rev	11.1%	4.5%	19.9%
Net Inc w/out exceptional items	86.8	115.2	181.2
Above in %	12.9%	14.9%	19.9%

​

The Exceptional Items in 2021 was related to IPO and Auditing charges (one off event) as they IPOed in Jan 2021.

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A Trading Statement was released on the 19th of Jan, 2023 which led to the sudden drop in share price.

“Demand for Dr. Martens remained resilient through challenging conditions during our peak trading period of Q3. However, due to a combination of significant operational issues creating a bottleneck at our new LA distribution centre and weaker than anticipated US DTC trading, in part due to unseasonably warm weather, we now expect full year revenue growth of 11-13% on an actual currency basis and full year EBITDA to be between £250m and £260m.”

https://ir.design-portfolio.co.uk/viewer/71/55591

An EBITDA of 250m to 260m implies an EBITDA/Rev margin of 27% to 28%.

I believe this is a temporary event that doesn't warrant a more than 30% correction.

Now, the main issues I can see is the following

– Distribution Center issues (one off-event)

– The “warmer winter” may be an excuse for reversal in fashion trend, perhaps the management didn't want to mention it, this is all speculation.

​

Bear Thesis, at it's basic level:

Model 1 EPS*PE:

– Management expects 11-13% revenue growth for FY2023 due to the LA distribution centre debacle. I'll use 10%, which brings us a revenue of 979 million.

– Assuming an absolutely massive net income margin compression due to recession, rising costs, lower demand etc.

– From 19% net margins in 2021 and 2022, to 12% net margins = 118M net income

– 1,004,000,000 shares outstanding

– EPS = 0.117

– PE of 13 = £1.52

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Model 2 EV/EBITDA:

– Assuming 250M EBIDTA with 10x multiple, accounting for 133M cash, 634.8 total liabilities and 1004M shares outstanding…

– (250*10+133-634.8)/(1004) = £1.99

​

Model 3 DCF:

Some Assumptions:

– 12% discount rate

– 10% Revenue growth for FY2023, 5% growth for the next 9 years, and 2.5% perpetual growth

– FCF/Revenue % is historically 12.2%, 22%, 14.5% for 2020, 2021, 2022 respectively. Let us assume this will drop to 10%

– Share Price = £1.72 (accounting debt, cash etc.)

Basis Case:

Model 1 EPS*PE:

– 12% Revenue Growth for FY2023

– From 19% net margins in 2021 and 2022, to 15% net margins = 150M net income

– 1,004M shares outstanding

– EPS = 0.149

– PE multiple of 13 = £1.93

​

Model 2 DCF:

– 12% discount rate

– FCF/Revenue % is historically 12.2%, 22%, 14.5% for 2020, 2021, 2022 respectively. Let us assume this will drop to 12.5%

– 12% Revenue growth for FY2023, 5% growth for the next 9 years, and 2.5% perpetual growth

– Share Price = £2.33

Bull Case (pessimistic with 6% 1-10yr revenue growth)

Model 1 EPS*PE:

– 12% Revenue Growth, 6% for FY2024

– From 19% net margins in 2021 and 2022, to 15% net margins = 156M net income

– 1,004M shares outstanding

– EPS = 0.1554

– PE multiple of 13 = £2.01

​

Model 2 DCF:

– 12% discount rate

– FCF/Revenue % of 13.5%

– 12% Revenue growth for FY2023, 6% growth for the next 9 years, and 2.5% perpetual growth

– Share Price = £2.79

​

Some additional info

– A very frequent criticism is that Doc Marten's quality is not as good as Solovair, however, Doc Martens are comfortable, fashionable, and people buy them for the brand (after asking some of my friends).

– DTC business model may push growth beyond the 6% 1-10yr growth rate that I've assumed. Especially as they are starting in Hangzhou and Shanghai.

– Obviously there's recession risks, fashion trend risks etc.