Card Factory (CARD) 95.6p

Loss to date: 3.3%

We urged readers to buy Card Factory (CARD) at 98.9p on 11 July on the grounds the cash-generative retailer’s growth prospects were underappreciated and its low valuation suggested significant re-rating scope.

Shares also highlighted the value-focused greetings card-to-gift seller’s modest share of a large TAM (total addressable market) and its capacity for returning cash to shareholders through dividends, as well as undertaking growth-enhancing acquisitions having reduced its debt levels.

WHAT HAS HAPPENED SINCE WE SAID BUY?

The shares have basically round-tripped to leave our call 3.3% in the red. Stunning early gains arose on no news flow, with the stock peaking at 143p on 23 September for a 45% gain on paper, before plunging on mixed first-half results (24 September).

Adjusted pre-tax profit slumped the best part of 35% to £14.5 million in the six months ended 31 July 2024, which Card Factory blamed on operating cost inflation and the ‘phasing of strategic investments’, and full year profits will be second half weighted, meaning much hinges on the important Christmas season.

WHAT SHOULD INVESTORS DO NOW?

Investors who failed to book profits on the way up should average down and buy more stock. Chief executive Darcy Willson-Rymer’s growth strategy has clear momentum with all channels in growth in the first half, demonstrating that demand for Card Factory’s value offering of gifts, balloons, cards and party supplies remains robust.

The sell-off looks overly hash considering the company left its full-year 2025 guidance unchanged and declared an interim dividend for the first time in five years, suggesting confidence in the outlook.

Strategic progress in the Partnerships division excites too, with Card Factory expanding its partnership with Aldi to cover the whole of its UK and Irish estate, effectively doubling the revenue opportunity, and having secured a US market entry through a wholesale partnership with an as-yet-unnamed retailer which will begin trading ahead of Christmas.

Card Factory continues to look too cheap on a single-digit forward multiple of earnings. 

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