This FTSE 250 stock is down 22%. I can’t get enough of it!

This Fool has scoured the FTSE 250 for the best buy for his portfolio and he think he’s found it with this stock. Here he breaks down why.

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A host of FTSE 250 stocks look like absolute bargains to me right now. One of them is Safestore (LSE: SAFE).

That’s my opinion anyway, although it seems that not everyone agrees with me. In the last 12 months, it’s seen 21.7% shaved off its price. Today, a share in the Hertfordshire-based business costs just 743.5p.

I’m not complaining at all. Instead, I’m hoping to have some spare cash in the weeks ahead to pick up some more shares. I’ve been adding to my holdings in recent times. Let me explain why.

A solid investment

Safestore does what it says on the tin. It’s the largest provider of self-storage units in the UK. In Europe, it takes second place. As far as investments go, that’s far from thrilling. It would be much cooler if I had my money tied up in the next up-and-coming tech stock. I get it.

But while it’s not glamorous, it’s certainly been a solid investment for patient shareholders. In the last decade, the stock has climbed 223.1%. During the same time, the FTSE 100 is up just 18.2%.

While past performance is by no means an indication of future potential returns, I still see value in Safestore shares today. They trade on a trailing price-to-earnings ratio of 16. That’s slightly higher than the FTSE 250 average of around 12.1, but it’s not ludicrously expensive, in my opinion.

Vying for top spot

What’s more, I like where Safestore is heading. By that, I’m referring to where management plans on taking the business in the years to come.

I highlighted earlier that the company is the second largest of its kind in Europe. I have an inkling that Safestore has its eye firmly set on becoming number one.

In 2023 the company added 500,000 sq ft of lettable areas across three countries, including in the lucrative German market. To go alongside that, it grew its development pipeline to a further 1.5m sq ft across 30 projects.

Impressive track record

There’s another reason why I like Safestore. It allows me to generate passive income.

It has a 4.1% yield. That’s not the highest out there. However, it has continuously hiked its dividend payment every year for 14 years. Over that time, its payout has risen at an annualised rate of 18%. Although dividends are never guaranteed, that’s the sort of track record I like to see.

Interest rates

All being said, there are a couple of threats I’m wary of.

Firstly, interest rates are an issue. They’re one of the main reasons its share price has taken a beating recently. Higher rates mean tough times for customers. This could see some let go of their space. They also negatively impact property valuations.

The business also has an £810.3m debt on its books, which could be a source of concern. That said, the business has highlighted that 73% of its debt is at a fixed interest rate from 2024 to 2033.

An opportunity

I see now as a great opportunity for me to add cheap Safestore shares to my portfolio.

As interest rates fall, I’d expect the stock to rebound. With its ambitions for the future, I like the look of where the business could go in the coming years.

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.

Charlie Keough has positions in Safestore Plc. The Motley Fool UK has recommended Safestore 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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