Here’s a slumping FTSE 100 stock I’m avoiding right now!

This Fool details a FTSE 100 home improvement business and explains why she’s steering clear of the shares.

| 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.

Frustrated young white male looking disconsolate while sat on his sofa holding a beer

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.

Many FTSE 100 stocks have fallen in recent months. Some look like bargains to pick up now with a view to them rebounding later if a market recovery were to occur.

One stock I’m not planning on adding to my holdings any time soon is Kingfisher (LSE: KGF). Here’s why.

Home improvement retailer

Kingfisher is one of the biggest home improvement retailers around, with approximately 2,000 stores across 10 countries and an 82,000-strong workforce. Some of its best known brands include B&Q, Screwfix, and TradePoint to mention a few.

Kingfisher shares are currently trading for 201p. Over a 12-month period, they’re only down 2% from 206p at this time last year. However, since macroeconomic issues began hindering markets, the shares have fallen 30% from 286p in February to current levels. They’re down even further since the height of the pandemic when the business enjoyed a great spell.

Economic uncertainty, profit warnings, and gloomy outlook

During the pandemic, many of us found ourselves locked down and at home looking for things to do. Kingfisher stores were deemed essential and therefore remained open. I personally remember attempting a few DIY projects and frequenting B&Q for decorating supplies. Kingfisher enjoyed a great time during this period.

Fast forward to 2023 and soaring inflation, rising interest rates, and geopolitical tensions have wreaked havoc for many FTSE 100 stocks, Kingfisher included. Some of the by-products of these issues include a cost-of-living crisis and fears of a housing crash to mention a couple. These factors have dampened the Kingfisher share price substantially. After all, people are concerned about food and energy costs, not decorating their homes.

With that in mind, Kingfisher’s performance has been materially impacted. The business recently announced that it was downgrading profit forecasts by 7%, compared to original estimates.

The ongoing fight against inflation and other issues that have reared their heads don’t seem to be coming to an end anytime soon. This uncertainty is a major red flag for me when considering Kingfisher shares.

On the other side of the coin, an argument could be made that Kingfisher shares are a contrarian buy now for greener pastures later down the line.

For example, Kingfisher has an excellent profile and presence. This could help boost its performance and shares when the economic outlook brightens up. Furthermore, there is a passive income opportunity at present with a dividend yield of 6% on offer. Personally, I’m not convinced it is sustainable at such levels. Plus, the yield will have risen as the shares have fallen off recently.

Finally, Kingfisher shares look cheap right now on a price-to-earnings ratio of just 11. This is lower than the FTSE 100 average of 14.

Better FTSE 100 stocks out there

I’m not adding Kingfisher shares to my holdings any time soon. Too much economic uncertainty is the main reason. Plus, revising profit targets is rarely a good sign, in my opinion.

I believe there are better FTSE 100 stocks that would boost my holdings right now. These stocks have better fundamentals, a sustainable passive income opportunity, and defensive traits. I’ll be taking a closer look at these other stocks instead.

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 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.

More on Investing Articles

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Time to sell this FTSE 100 underperformer, says Goldman Sachs

Analysts at one investment bank have a ‘sell’ rating on FTSE 100 stock Diageo. But could a short-term weakness in…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Down 5%, Glencore’s share price looks a serious bargain to me now

Glencore’s share price looks undervalued to me, supported by strong earnings growth prospects and the potential resumption of extra shareholder…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’d invest £6,580 in this FTSE 250 REIT for £500 passive income

This FTSE 250 renewable energy enterprise is on track to become a Dividend Aristocrat! Here’s how I’d invest to earn…

Read more »

Investing Articles

Buying 1,000 of some dividend shares today unlocks £45 in weekly passive income!

These shares are among the biggest dividend payers in the FTSE 100. Should investors be buying them now to earn…

Read more »

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

If I’d put £5k in index funds 5 years ago, here’s what I’d have now

Investing in index funds is an excellent way to grow wealth with minimal effort. But how much money can investors…

Read more »

Investing Articles

10.2% yield! 1 of the top income stocks to buy in July?

A 10% yield's pretty rare, but this firm's been growing shareholder payouts for nine years! Does that make it one…

Read more »

Investing Articles

‘FTSE 100 to skyrocket to 10,000’! 1 cheap stock I’d buy before the surge

Analyst forecasts predict a massive surge for the FTSE 100 may be coming by April 2025! Should investors snap up…

Read more »

Investing Articles

My Taylor Wimpey share price prediction for the second half of 2024

Having underperformed the FTSE 100 from January to June, our writer reckons the Taylor Wimpey share price might enjoy a…

Read more »