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I believe some UK stocks may be trading at rock-bottom prices due to recent market volatility. One stock caught my eye recently. Hotel chocolate (LSE:HOTC) is a buy title.
As a quick introduction, Hotel Chocolat is a British based chocolate and cocoa grower. It has a retail network in the UK and Japan, as well as an online presence. It is the only UK company to grow cocoa on its own farms.
So what’s going on with Hotel Chocolate shares right now? At the time of writing, they are trading for 142p, this time last year, the stock was trading for 380p. This equates to a 62% reduction over a 12-month period.
To buy or not to buy?
I’ve compiled a list of the pros and cons to help you decide whether you should buy Hotel Chocolate stock.
bHotel Chocolat posted full-year results for the 52-week period ended 26 June 2022. I found them to be generally positive. Revenue is up 37 percent from 2021 and up 60 percent from 2019, the last full year without disruption from pandemic-related issues. Both cash generation and profitability fell short of expectations. In my opinion, it has recovered well from the pandemic and can now look towards future growth ambitions, which is also indicated in the update.
againstIt now has to contend with macroeconomic headwinds since the pandemic. These include high inflation, rising material costs and supply chain constraints. Increasing costs can put pressure on profit margins, which will encourage profit and growth initiatives. Supply chain problems can negatively impact operations such as product availability, which can affect sales and performance.
bOne advantage that I believe Hotel Chocolat has over its competitors is that it grows cocoa on its own farm in St. Lucia. I believe this advantage will help Hotel Chocolat ease its supply chain problems and give it an edge over its competitors. Supply chain problems are disrupting many UK stocks and their day-to-day operations.
againstEarlier this month, Hotel Chocolat announced it would stop operating its US direct-to-consumer arm, but remain open to wholesale. In its update in July, it said it wanted to focus on low-risk and profitable growth opportunities. Perhaps the American market does not fall into this category. As a potential investor, it is unlikely to see the company emerge from a profitable, large market such as the US.
What I do now
If I had some spare cash I would be willing to buy shares of Hotel Chocolate. Hotel Chocolat’s recent results, the benefit of having its own cocoa farm, as well as its international profile and presence helped me make my decision. I believe the current macroeconomic headwinds will eventually moderate. Additionally, I believe it has a healthy balance to help overcome these obstacles.