This FTSE 100 value stock looks like a great opportunity to me!

Sumayya Mansoor explains why, despite its poor run of late, this value stock could be a great addition to her holdings for growth and returns.

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One value stock I like the look of is RS Group (LSE: RS1). The shares have been on a poor run recently but this has thrown up a buying opportunity, in my opinion. Here’s why I’m bullish on the shares.

Industrial and electronic equipment

RS Group is a UK-based omni-channel retailer of industrial and electronic products and services. It predominantly serves the engineering and construction sectors.

So what’s happening with RS Group shares? Well, they’ve been one of the biggest losers on the FTSE 100 during the recent market volatility. This has been caused by soaring inflation and rising interest rates. Geopolitical tensions haven’t helped either.

As I write, RS shares are trading for 711p. At this time last year, they were trading for 964p, which is a 26% drop over a 12-month period.

The investment case

For any value stock I’m reviewing, I want to understand more about its valuation. RS shares look good value for money right now on a price-to-earnings ratio of 12. This is lower than the FTSE 100 average of 14.

Next, RS shares would boost my passive income with a dividend yield of 2.9%. However, I do understand that dividends are never guaranteed.

Despite challenges it faces (more on these later) RS has a good track record of performance. I can see it has increased revenue and profit for the past three years. Its most recent full-year update for the period ended 31 March 2023 made for good reading. Revenue and profit before tax increased by 17% and 23% respectively compared to the previous year. Earnings per share jumped substantially by 24% and dividends per share increased by 16%.

Finally, RS Group looks like it has a solid balance sheet with minimal debt and good cash flows, which can help underpin growth initiatives and boost investor returns.

To the bear case then. RS has faced cooling demand for its product and services due to economic issues. A weakened economic outlook has impacted it somewhat, but it has still performed admirably in the face of such headwinds. There’s no telling when the economic outlook could change for the better so there is a chance that a prolonged poor economic outlook could hamper RS Group.

Another challenge it has had to navigate, and could continue to face in the short term at least, is a supply chain crisis. This is not only impacting RS, but many businesses and industries globally.

A value stock I’d buy

To conclude, I think RS Group’s share price drop has presented a great opportunity to buy a top stock at a bargain price. I’ve decided the next time I have some spare cash to invest, I’m going to snap up some RS shares for my holdings. A solid balance sheet, good valuation, and passive income opportunity have helped me make my decision.

In the short term, RS Group faces a challenging environment. However, I invest for a five- to 10-year period. In that time, I’d expect its share price to recover to provide me with capital growth as well as continued dividends.

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.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended Rs Group Plc. 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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