This FTSE 250 share is up 25%. Should I buy now?

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The top riser on the UK stock market on Wednesday morning was FTSE 250 share Dr Martens (LSE: DOCS). Shares in the fashionable bootmaker rose by more than 25% after its 2021/22 profits beat market forecasts.

Investors had feared that the firm’s progress would be held back by soaring manufacturing and transport delays. But this doesn’t seem to have been a big problem. I’m wondering whether I should buy Doc Martens shares for my Stocks and Shares ISA, ahead of further possible gains.

A strong result

Doc Martens reported sales of £908m and an after-tax profit of £181m for the year ended 31 March. That smashed City forecasts for a profit of just £155m.

When supplies were tight, management prioritised sales through its own stores and website and cut wholesale shipments. This allowed the company to generate an underlying cash profit margin of 29%, slightly higher than in the previous year.

I think that’s a pretty solid result, given that Doc Martens faced problems including a three-month factory closure in Vietnam and “a near-doubling of shipping times” from Asia to the USA.

As well as being a good financial performance, this achievement suggests to me that Doc Martens has good operational management. That’s something I always try and look for in an investment, to help minimise the risk of nasty surprises.

Another good year ahead?

Before I think about buying its shares, I need to know whether sales are likely to continue growing over the coming year.

Fortunately, management have chosen to provide clear guidance to investors on this front. Chief executive Kenny Wilson said that factory prices for the year are now locked in and “we have good visibility” over other operating costs.

In financial terms, sales are expected to rise by “high teens”, which I take to mean 15-19%. Profit margins are expected to be broadly the same as last year.

I’ve made some rough calculations and I estimate that after-tax profit could rise by perhaps 7%, to £193m this year. That’s slightly ahead of previous broker forecasts and would be a good result, in my view.

A bargain FTSE 250 share?

Dr Martens’ management seem to be bullish about the year ahead. But there’s one topic it skirted around in Wednesday’s results – consumer demand. Footwear prices are being increased from this autumn to reflect higher costs. But management said it still expects to sell more pairs of boots and shoes this year.

Perhaps they will. But what concerns me is the risk that sales growth could slow as the rising cost of living hits consumer spending. After all, a new pair of DMs is not exactly an essential purchase.

If sales slow, then profits could quickly fall below current expectations. To protect against this risk, I’d want to make sure that I don’t overpay for Doc Martens shares.

After Wednesday’s share price surge, I estimate that DOCS shares are trading on perhaps 14 times forecast earnings. On balance, I’d say this is probably a reasonable price.

However, in this uncertain market, I’m focusing my attention on shares I think are really cheap. I’m not sure that Dr Martens fits this description, so I won’t be buying just yet.

The post This FTSE 250 share is up 25%. Should I buy now? appeared first on The Motley Fool UK.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.