Should You Buy Booker Group Plc After Recent Declines?

Is Booker Group Plc (LON: BOK) a buy after recent declines?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Booker Group (LSE: BOK) has slumped more than 6% today, after it was revealed that Metro AG will sell its stake in Britain’s biggest cash-and-carry wholesaler. Metro owns 9% of Booker, a stake acquired when it sold its own loss making cash-and-carry operations to Booker for £140m. 

However, Metro is only selling its stake to pay down debt and reduce capital, as of yet the German chain has not indicated that it is displeased with the British retailer’s performance. The two parties will continue their strategic partnership. 

Nevertheless, today’s declines have pushed Booker’s share price to within inches of its 52-week low. Booker’s share price has fallen more than 22% year to date. But with Booker’s underlying business still going strong, it could be time for investors to make use of recent declines and buy in.

Robust growth stock exchange

As a cash-and-carry chain, Booker has benefited from the UK’s recent drive towards discount buying. Indeed, during the past five years the company’s revenues have expanded 38%. In addition, margin growth has driven pre-tax profit higher by 114% over the same period.

Moreover, the City does not expect this growth to stop any time soon. For example, City analysts have pencilled in a further 28% growth in pre-tax profit over the next two years. Sales are expected to rise 6.4% over the same period. 

Unfortunately, with the rest of the UK’s grocery sector in the doldrums, investors are willing to pay a premium to get their hands on Booker’s shares as the company continues to grow. Even after recent declines, Booker still trades at a forward P/E of 21.5, a valuation significantly higher than that of the company’s peers. 

Booker’s shares do support a dividend yield of 2.4% at present levels, offering some relief from the high valuation. This is excluding special dividend payouts, Booker returned an additional 3.50p per share to investors earlier this year as part of the group’s commitment to investors. City analysts expect the yield to hit 3% next year. The payout is covered 1.8 times by earnings per share.

Time to buy?

There’s no doubt that with sales still expanding, Booker is an attractive proposition. However, even after recent declines, the company’s shares may still be too expensive for some investors. On the other hand, growth investors could find Booker’s prospects too good to pass up. 

Still, for those who believe that Booker is too expensive, there are other opportunities out there. You see the key when searching for growth stocks is looking under the radar. You want to get on board while the company is still an unknown quantity, that way you won’t need to pay a premium in order to benefit from the company’s growth. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended shares in Booker Group. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »