With pandemic restrictions now seemingly relaxed for the foreseeable future, I think some UK shares have excellent growth potential. One such stock is Card Factory (LSE:CARD). Should I add the shares to my holdings?
Greetings and gift cards
Card Factory is a specialist retailer of greeting and gift cards as well as party products. It has over 1,000 stores in the UK and Ireland. It also now has an extensive online store to supplement its offering.
Due to its bricks-and mortar-business model, Card Factory struggled when the pandemic struck, as many of its stores were closed due to restrictions. Its share price tumbled and it had to borrow money and offer new shares to raise funds to keep the lights on. This did not help with investor sentiment. Unfortunately, recent years have seen the rise of online-only disruptors to its market, which has affected market share.
As I write, Card Factory shares are trading for 57p, making it a penny stock. At this time last year, the shares were trading for 33p, which is a 72% return over a 12-month period.
UK shares have risks
Despite my bullish attitude towards Card Factory’s growth potential, there are credible risks that could derail its progress. Firstly, the nature of the pandemic and threat of new variants could see retail locations closed once more if new restrictions come into force. This affected performance previously and could do so once again.
In addition, Card Factory has had to evolve to combat the threat of online-only disruptors. The rise of e-commerce has seen many consumers stay away from retail outlets and use online-only platforms for their greeting cards and gifts. I myself have used competitors such as MoonPig in recent times when sending cards or gifts to loved ones. These competitors could continue to eat away at market share and affect performance and returns.
A UK share I’d buy
I believe pandemic-related struggles could be a thing of the past for Card Factory. Firstly, its retail network is still as strong as ever and it plans to continue opening new stores in key locations if they could boost performance.
Next, Card Factory decided to bolster its online offering when faced with threats of competition and the changing face of retail. It plans to become a “multi channel retailer”. I believe past results after its online re-brand occurred show this could help boost growth in the years ahead with online sales growing exponentially. I do understand past performance is not a guarantee of the future, however.
Coming up to date, a trading update Card Factory provided for the 11 months ended 31 December 2021, filled me with confidence for the outlook ahead. It upgraded revenue expectations for the full-year period. It also confirmed it expects sales to grow nicely from over £360m last year, to more than £600m within a five-year period. Profit is not yet near pre-pandemic levels but overall trading seems to be. This tells me recovery and an eye on growth ahead is in full effect.
Overall I like the look of Card Factory shares for my holdings right now. I would add shares and expect to see growth and excellent returns over the long term.
Jabran Khan 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.
