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Is Card Factory Growing Too Fast to Support Rising Profits?

By Malcolm Stacey | Wednesday 10 May 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Hello Share Hikers. It’s been my view for yonks that companies which make and sell greetings cards are possibly cruising for a bruising.

I, for one, am getting far fewer Christmas and birthday cards than I used to. I put this down to the increasing cost of postage stamps and the ability to send your birthday greetings in more modern ways - Facebook, WhatsApp, Twitter and so on. It may not be the same as receiving a card through the post, but that’s the way it’s going.

Card Factory (CARD) has done well so far because we send an average of 30 cards each every year. But it’s hard for this old punter to see that continuing at that rate for many more years. So I won’t be investing in the company even though it’s based in God’s own county and has so far given £3 million to the McMillan Cancer Nurses.

It did do better than expected trade at Christmas - and that has energised the share price. But profit is not rising that much and my fears about a falling popularity of cards weighs on my enthusiasm. 

It’s fair to say that the company disagrees with me on all counts. It argues that the card-giving habit is ingrained into British culture and that its cards are great value because most sell for less than a quid. And in any event, a third of sales are for party stuff, like balloons, wrapping paper, ribbons, bows, small gifts and so on.

The company has 850 stores and has opened 50 stores a year for the last ten years. Though that shows strong growth, one wonders how long the sheer costs of running an operation like that can be mitigated by growing profits. And, of course, without that impetus the share price will not soar.

See you in the Punter’s Return?

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