Howdens (LSE:HWDN) shares — formally Howden Joinery Group — fell lower on Monday morning. The stock has been on a downward track this year amid sky-high inflation and the cost-of-living crisis in the UK.
The firm entered the FTSE 100 earlier this year after Evraz and Polymetal fell out of the index.
Howdens is perhaps best known to those in the building trade. The company sells kitchen and joinery products. It is the UK’s no.1 trade kitchen supplier, but also has depots across Europe.
A falling share price
The Howdens share price has fallen from highs of over 900p a share at the beginning of the year to 606p today. This is largely reflective of the macroeconomic situation. Inflation has pushed material costs higher and there’s a well-publicised supply chain crisis.
Margins are being squeezed and, of course, if these costs are passed onto customers, it could impact demand.
Moving forward, negative economic forecasts could slow demand for housing and rocketing costs may reduce home refurbishment spending.
Reasons to be optimistic
The pandemic saw Britons investing in their own homes and companies like Howdens benefitted as a result. This is part of the reason the business is still up 13% over the last two years.
And the company has also been growing substantially. This partially allowed it to prepare for supply chain constraints by buying large quantities of stock for its warehouses.
Meanwhile, Howdens’s broader growth trajectory has been impressive. Increasing from 14 depots in 1995 to more than 750 in March this year.
This means Howdens has been in prime position to benefit from the booming construction industry over the past 18 months. And despite some short-term issues facing the housing market, I think the long-term prospects are positive, given that housing supply continues to fall short of demand.
This was reflected in its most recent trading update.
The kitchen supplier said that overall revenues had grown 21.8% year-on-year in the 16 weeks ended 16 April. It noted that depot revenue rose 20.1%, driven by increases in both prices and volume.
Howdens is planning to expand further this year. It wants to open around 25 new depots in the UK, 25 in France, and five in Ireland during 2022, in addition to refurbishing around 70 older UK sites.
Would I buy Howdens shares?
For a company intent on growth, a price-to-earnings ratio of 11 doesn’t seem expensive to me. However, its 1.5% dividend yield isn’t overly exciting. In fact, that’s far below the FTSE 100 average.
Despite this, I would buy Howdens shares at the current price and hold for at least year five years. I appreciate there may be a better buying opportunity later this year if the share price continues to fall. But buying now is a risk I’d be willing to take.
