Should investors consider investing in cycling? If so, what companies are worth considering? And will Halfords win big time, or will it go the way of Kodak? What other options are there?
Investing in cycling: Is Halfords a good bet, or is it another Kodak?
In 2012, more photographs were taken in the US than in any previous year. Of course, things have taken off since then. It is projected that in 2021 and 2022, around three trillion photos will be taken, yet up to the year 2011, the cumulative total of photographs ever taken is estimated to have been 3.5 trillion. Imagine if, in the year 2000, you had found a time capsule detailing the explosion in the number of photographs. You may well have reasoned “I think I am going to buy shares in Kodak.” Well, your logic would have appeared sound. Alas, Kodak went bust in 2012.
I tell that story because it reminds me of cycling and Halfords.
Cycling is in, and the government wants more of it. And love him or loathe him, there is little doubt the Boris Johnson is backing the craze.
Or is it a craze? Is cycling here to stay? It’s popular now in part because of Covid and a belief that if we are fitter, we are less likely to suffer severe symptoms or even die if we get the virus. Also related to Covid, people may want to get to work, but want to avoid public transport.
Add to that, the government’s recent scheme to provide £50 vouchers to get their bike fixed.
There is, however, a longer-term trend. Society is getting older, and if there are many blokes like me out there, whose knees are not what they used to be, cycling appears to be a knee-friendly, exceptionally good form of exercise.
So I think cycling is going to be popular short and long-term.
What can investors do about the cycling craze?
The obvious company for investors wanting to sink money into cycling is Halfords.
Now, I may be unfair in drawing the parallel with Kodak — the point I am trying to make is that obvious is not always the right approach.
There are bike shops all over the place in my neck of the woods — I expect it’s the same for you. And most bikes seem only marginally cheaper than a decent second-hand car.
Halfords addresses the other end of the market — and I have a downer on the company after I bought a bike there for my son which I struggled to assemble correctly.
I also wonder if people want their bike shops to be local and not in shopping centres or out of town centres, more typical for Halfords.
On the other hand, maybe if cycling is to become truly popular and not just for middle-aged men in lycra (mamils) who can afford a couple of grand for a bike, and another few thousand if they have kids, there needs to be much cheaper options.
Maybe Halfords can democratise cycling.
It’s latest trading update was out on September 8th. The update covered the period from April 4th to August 21st. It started poorly, revenue was down 14.3 per cent from April 4th to May 1st, for example, but from August 1st to the 21st, revenue increased 29.6 per cent. For the entire period, revenue increased by 7.5 per cent. During the period, like for like cycling revenue increased 59.1 per cent on the same period last year.
The company said: “Our long-term strategy, which will evolve Halfords into a consumer and B2B services-focused business, with a greater emphasis on motoring and a more profitable cycling category.”
All of this reassures me. Maybe my analogy with Kodak is wrong. And if it is wrong, Halfords could sit pretty.
Shares in Halfords hit their all-time high in 2015. It would appear from the share price history that markets have not fully factored in the impact of cycling’s new popularity.
But where else can shareholders look?
Tandem Group is a designer, developer, distributor and retailer of sports, leisure and mobility products. It sells some pretty fancy bikes. Shares hit their highest level since 2001 last month; the P/E ratio looks on the low side, in my opinion. The company is relatively small — market cap £17 million, but profits have more than doubled in the last five years.
There is also Peloton. I am not sure if you would define this as a cycling company — more an indoor fitness technology company. It sells exercise bikes, notably for their interaction with a monitor. For more on this company, see this article written in June. Is now a good time to be investing in online fitness?
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees