This FTSE 250 stock just saw a sharp drop. Would I buy it on dip?

The Marshalls share price took a beating after its latest trading update. Is it warranted?

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This has been a poor week for the FTSE 250 landscaper Marshalls (LSE: MSLH). Its share price has fallen by around 9% on account of its trading update, which investors clearly found disappointing. This has dragged its price down by almost 30% over the year, no thanks to the drop in general sentiment. The FTSE 250 index, too, has fallen some 10% in the past year. 

I bought the stock a while ago based on its fundamentals and the outlook for the company. And for sometime at least it was a winning stock in my portfolio. The question now, though, is whether it can bounce back or will it continue to languish. 

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Trading update has strong positives

The FTSE 250 company reported a decent 7% increase in revenue for the four months of 2022 ending April, compared to the same time last year. It is also positive in its outlook for the rest of the year. It expresses confidence in being able to pass on increases in costs, which should bode well for its bottom line. 

Further, it also acquired Marley, a market leader in roof systems. Marshalls mentions it as being “cyclically resilient”, which could be a definite positive at a time when growth is slowing down. The UK just reported a contraction in economic output in March compared to February. 

In fact, the company itself points out in its update that the Construction Products’ Association has reduced its forecast for growth in UK market volumes for 2022 and 2023, because of a “more uncertain trading environment”. This is probably one reason why investors are downbeat about the stock now. 

Also, while its revenues have grown, the growth has slowed down from last year, which could be playing on investor sentiment towards the stock too. The company chalks it up to a strong comparator period, which included “record seasonal sales volumes”, however. 

Healthy FTSE 250 stock

Keeping everything in mind, I definitely do not see a reason to sell Marshalls now. In fact, considering that the company expects its debt levels to remain in check, I will continue to hold on to it even in the event of an economic slowdown, which could impact it. Also, it posted healthy numbers for last year as well, which is encouraging. It is also a dividend stock, with a yield of around 2.7%. This is marginally higher than that for the FTSE 250 as a whole. 

What I’d do about Marshalls

However, I do see why falling growth could be a deterrent for investors. This is especially so as the FTSE 250 stock is not exactly cheap with a price-to-earnings (P/E) ratio of almost 20 times. This is higher than even many financially healthy FTSE 100 companies. Still its outlook looks good to me. And if its earnings rise, its P/E could drop. I might just buy more of it in the coming days. 

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Manika Premsingh has positions in Marshalls. The Motley Fool UK 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.

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