I think these cheap shares might be one of the best buys out there right now.
Howden Joinery Group (LSE:HWDN) might not be a household name, but it does create household products.
The organisation specifically caters to small, local homebuilders. The main segments are kitchens, appliances, doors and joinery, hardware, flooring, and bathroom cabinets.
It is predominantly a UK business with UK revenue streams. The motto of the business is ‘worthwhile for all concerned’. Additionally, the company only sells through trade customers, which is a strategy that helps support small trade businesses.
Remarkable growth
The top element of this investment based on my analysis is the three-year average annual revenue growth rate, which is 16%. Over 10 years, the average annual revenue growth rate is 10%. That presents forward momentum in revenue growth over time — a very promising sign.
Multiple elements of the business’s operations have contributed to such strong revenue growth. For example, the company has consistently expanded across the UK, and recently into Europe. My favourite strategic strength is the loyalty fostered by selling specifically to local builders and contractors rather than to the end consumer.
What’s the weakest area?
The company carries a significant amount of debt. With a cash-to-debt ratio of 0.2, it ranks in the bottom 25% of 400 companies involved in furnishings, fixtures, and appliances.
However, I’ve looked at the balance sheet and the good news is that over time the company’s total equity has increased significantly.
Since 2010 when Howden Joinery had a total equity of 6% to today’s 43%, the business has been strong. The company’s total liabilities have decreased from 94% in 2010 to 57% today.
Down 30%: here’s an opportunity
Once I know I’ve found a strong business, I want to know I’m buying it at a good price. Amazingly, Howden Joinery is currently trading at a juicy 30% discount from its all-time high.
But what are the reasons for this? Well, the company has announced an expected lower band for full-year profit due to macroeconomic difficulties. In addition, recent revenue has seen a microscopic downtrend. The reason I’m not concerned is some fluctuation in revenue is always to be expected. The long-term trend is unmistakably strong.
My overall sentiment on the current low share price relates to current macroeconomic conditions in the UK, with high interest rates and high levels of inflation curbing trade purchases and consumer spending.
The good news is that 2024 seems to be the year when these macroeconomic tensions may ease. That’s when I bet Howden Joinery shares will begin to see a runway period for further price return growth to take off in 2025 and beyond.
The only reason I don’t own these shares at the moment is there are so many good companies also trading at currently low levels. One I purchased a stake in recently was Pets at Home, which I bought when it was down 45%!
