Gabriel McKeown outlines why Warren Buffett’s value investment style has led him to potentially add Dr. Martens to his portfolio.
Image source: The Motley Fool
The renowned Omaha-based value investor Warren Buffett aims to buy cheap, hold long, and outperform, a simple strategy, yet notoriously difficult to implement. It requires a great deal of discipline and patience to wait for opportunities where good quality companies are being neglected by the market, and the current share price no longer reflects the true value of the business.
I often like to screen the market for ideas that I think history’s greatest investors might be interested in, and my latest FTSE 350 filter highlighted Dr. Martens (LSE: DOCS) as one such company.
I think it’s fair to say that value investing, in the style popularised by Warren Buffett, is not the most exciting form of investing. It often involves identifying a high-quality company and then resisting the urge to purchase until the price becomes out of sync with the strong fundamentals. For that reason, I like to automate this process by using market screeners, which will notify me when a company with the characteristics I desire enters a suitable price range.
For these market screeners, I look for companies that have consistently grown earnings, a steady increase in profit margins, relatively low levels of borrowing, and plenty of positive cash flow. I find these core characteristics act as a good filter for identifying the type of shares I would be interested in, and in this instance, Dr. Martens met the restrictions.
This is a company that has seen double and triple-digit operating cash flow increases over the last one and two years respectively. It has also managed to steadily increase profit margins, and boost the efficiency with which it generates income from invested capital. In addition, Dr. Martens has a relatively low level of borrowing, in comparison to the industry and relative to its market capitalisation.
Despite these positive underlying fundamentals, Dr. Martens has experienced a tough time in the market over the last two years since its IPO, falling 39.1% in 2022. The company is also down just over 40% since the IPO in early 2021, indicating the market has not been hugely favourable towards Dr. Martens since joining the index. There are times when the market appears to be misjudging a company, but also times when falls in valuations are justified, so it’s important to consider whether this reduction in valuation is warranted.
For my portfolio, I would be tempted to add Dr. Martens shares, as I believe it has proven strong underlying fundamentals that Buffett would be looking for in an investment. Recent share price falls have now brought the company into a price range that is more in line with value investment principles, too. I would therefore be tempted to follow the investment strategy of Warren Buffett and add Dr. Martens to my portfolio.
Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.
Gabriel McKeown 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.
| Christopher Ruane
Rolls-Royce shares trade for pennies and shareholders have had a turbulent 2022. Christopher Ruane looks at the numbers — and…
Read more »
| Stephen Wright
Our author has just invested £6,500 adding Apple shares to his portfolio. But why does he think now is a…
Read more »
| Jabran Khan
Jabran Khan takes a closer look at what’s happening with this FTSE stock after its share price jumped up.
Read more »
| Yasmin Rufo
Dividend stocks are a great way of generating passive income, and Yasmin Rufo discusses two stocks with an impressively high…
Read more »
| Michael Hawkins
The markets are facing some significant economic headwinds. However, I believe some FTSE 100 stocks are well positioned to ride…
Read more »
| Christopher Ruane
Our writer could scoop up quite a few Woodbois shares for just one pound. Is that an opportunity he wants…
Read more »
| Harvey Jones
Investing in shares is a great way of building a passive income. So how much should I put away each…
Read more »
| Jon Smith
Jon Smith reviews the announcements from the Chancellor this morning and shares how he thinks it will help the stock…
Read more »
View All
Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.
To make the world Smarter, Happier, And Richer
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show and premium investing services.
Read more about us >
We have taken reasonable steps to ensure that any information provided by The Motley Fool Ltd, is accurate at the time of publishing. Any opinions expressed are the opinions of the authors only. The content provided has not taken into account the particular circumstances of any specific individual or group of individuals and does not constitute personal advice or a personal recommendation. No content should be relied upon as constituting personal advice or a personal recommendation, when making your decisions. If you require any personal advice or recommendations, please speak to an independent qualified financial adviser. No liability is accepted by the author, The Motley Fool Ltd or Richdale Brokers and Financial Services Ltd for any loss or detriment experienced by any individual from any decision, whether consequent to, or in any way related to the content provided by The Motley Fool Ltd; the provision of which is an unregulated activity.
The value of stocks, shares and any dividend income may fall as well as rise and is not guaranteed, so you may get back less than you invested. You should not invest any money you cannot afford to lose, and you should not rely on any dividend income to meet your living expenses. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, administrative costs, withholding taxes and different accounting and reporting standards. They may have other tax implications, and may not provide the same, or any, regulatory protection. Exchange rate charges may adversely affect the value of shares in sterling terms, and you could lose money in sterling even if the stock price rises in the currency of origin. Any performance statistics that do not adjust for exchange rate changes are likely to result in an inaccurate portrayal of real returns for sterling-based investors.
Fool and The Motley Fool are trading names of The Motley Fool Ltd. The Motley Fool Ltd is an appointed representative of Richdale Brokers & Financial Services Ltd who are authorised and regulated by the Financial Conduct Authority (FRN: 422737). In this capacity we are permitted to act as a credit-broker, not a lender, for consumer credit products. We may also publish information, opinion and commentary about consumer credit products, loans, mortgages, insurance, savings and investment products and services, including those of our affiliate partners. We do not provide personal advice and we will not arrange any products on your behalf. Should you require personal advice, you should speak to an independent, qualified financial adviser.
The Motley Fool Ltd. Registered Office: 5 New Street Square, London EC4A 3TW. | Registered in England & Wales. Company No: 3736872. VAT Number: 188035783.
© 1998 – 2022 The Motley Fool. All rights reserved. The Motley Fool, Fool, and the Fool logo are registered trademarks of The Motley Fool Holdings Inc.
