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B&M for European Value Retail (LSE:BME) is on my list of stocks to consider buying right now. With shares down 29% year-to-date, the dividend yield has reached 3.7%.
Furthermore, I think the stock market is underestimating the company’s growth prospects. Although there are challenges, there are also clear opportunities.
Why is the stock low?
B&M is not an obvious choice, by any means. Compared to others FTSE 100 shares, with significant short interest and the share price recently hit a new 52-week low.
Competition is the main reason for this. The company aims to differentiate itself with low prices, but popular Tesco again Sainsbury they were competing hard in this place.
Supermarkets also offer a wide range of products. That means unless B&M can lower the price, customers have an incentive to go elsewhere.
As cost-of-living pressures begin to ease, getting discounts has become less important to consumers. And this has been reflected in B&M’s results.
In its latest update, the company reported a 3.5% decline in like-for-like sales. That means its stores made less money in terms of revenue than they did in 2023.
The danger of this continuation is why analysts at UBS have a ‘sell’ rating on the stock. But I think there is another important metric that investors should pay attention to.
Store extensions
Individually, B&M stores may be less profitable than last year. But there is so much more and this has been more than offset by weak like-for-like sales.
Adjusting for currency fluctuations, the company’s net sales rose 2.4%. This was the result of new store openings during the year – and there are 26 more expected in the next nine months.
Eventually, B&M hopes to reach 1,200 stores, significantly more than its current base of 741 stores. If it can achieve this – or something like it – I think the stock is a bargain for now.
In the long run, I expect the expanded store count to be more than a modest like-for-like sales growth. And with a price-to-earnings (P/E) ratio of less than 11, we don’t need to grow much.
From an income perspective, the decline in share price has led to an increase in dividend yield. At 3.7%, the initial return for investors is higher than at any time in the last 10 years.
B&M Value Retail annual harvest 2015-2024
Created in TradingView
Since B&M has retained more than 50% of its profits, I think the chance of a dividend cut is low. That means there could be growth and revenue ahead – a powerful combination for investors.
Time to shop?
I’m not sure there’s been a better time to buy B&M shares than now. Competition in the retail space will always be fierce, but I think the current share price more than reflects this.
The company will report earnings at the end of this month. I will look at those who are interested before making a decision to add the stock to my portfolio.
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