After the B&M share price crashes 15%, would I buy today?

The B&M share price plunged by almost 15% on Tuesday, following disappointing full-year results. But after falling so steeply, is this stock now too cheap?

| More on:

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.

Hand flipping wooden cubes for change wording" Panic " to " Calm".

Image source: Getty Images

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.

By far the biggest faller in the FTSE 100 index today is B&M European Value Retail (LSE: BME). As I write late on Tuesday afternoon, the B&M share price has crashed by almost 15% since Monday’s close. Even worse, B&M shares have lost almost a third of their value in 12 months. So what’s going on at the 700-store bargain chain? And would I buy this stock after today’s plunge?

The B&M share price roller coaster

At its 52-week high on 4 January 2022, the B&M share price hit an intra-day peak of 651.4p. As I write, it trades at 394.8p, having dropped to a 52-week low of 385p early today. Following these falls, here’s how B&M shares have performed over seven different timescales:

One day-14.6%
Five days-8.4%
One month-22.0%
Year to date-37.6%
Six months-36.8%
One year-31.2%
Five years8.5%

As you can see, the B&M share price has fallen over six periods ranging from one day to one year. In other words, it’s had a tricky 2022. However, over five years, B&M shares have gained 8.5%, versus 1% for the wider FTSE 100 over half a decade. (All figures exclude cash dividends.)

What went wrong at B&M?

The big hiccup for B&M and its share price was revealed in its preliminary results for the year ending 26 March 2022. Formerly a go-go growth company, B&M revealed that group revenues fell by 2.7% year on year to £4,673m. As a result, profit before tax was flat at £525m, while earnings per share of 42.1p came in below 2020/21’s 42.7p.

Two more pieces of news probably affected the B&M share price. First, the final dividend is being reduced to 11.5p from 13p in the prior year. This takes the full-year dividend payout to 16.5p, versus 17.3p in 2020/21. Second, Alex Russo, currently Chief Financial Officer, will take over from retiring CEO Simon Arora. That’s a lot for shareholders to absorb in a single day, hence the sliding shares.

I’d buy B&M shares today

Following today’s crash in the B&M share price, here’s how the retailer’s fundamentals now stack up:

Share priceMarket valueP/E ratioEarnings yieldDividend yieldDividend cover
394.8p£3.9bn9.111.0%4.6%2.4
P/E ratio is price-to-earnings ratio

It’s important to note that these are backward-looking figures based on trailing earnings and so on. And B&M has warned that its sales and profits will take further knocks in 2022. Even so, a trailing price-to-earnings ratio of 9.1 and an earnings yield of 11% look undemanding to me. But they may be marked down even harder in future. That said, B&M’s dividend yield of 4.6% a year beats the wider FTSE 100 index’s cash yield of 4% a year. Also, dividend cover of 2.4 times gives plenty of room to maintain the dividend while awaiting a profit recovery. All this suggests to me that the B&M share price may have fallen too far.

To sum up, the B&M share price took a brutal beating today because the company is no longer the great growth engine it once was. But as a veteran value investor, its shares look cheap to me after steep falls. Hence, I’d buy and hold this variety discounter’s stock today, on hopes of decent dividends and future capital gains.

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.

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

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

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

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

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »