2 stuttering UK shares I reckon could recover sooner rather than later

Many UK shares have struggled in recent times. This Fool is tipping these two retailers to recover, and explains her investment case.

| More on:

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.

B&M European Value (LSE: BME) and Pets At Home Group (LSE: PETS) are examples of UK shares that have struggled for different reasons recently.

If I had the cash to invest today, I’d buy some shares now ahead of any potential recovery. Here’s why.

Discount retailer

I reckon B&M has become a victim of its own success. The shares dipped a couple of months ago due to what markets deemed a less-than-stellar trading update. There were no profit warnings, or a slump in sales, just flat operating cash flow and adjusted earnings per share.

The shares are down 18% from 551p on 3 June, to current levels of 449p. Over a 12-month period, they’re down 13% from 520p, to current levels.

This drop is good news, as it offers a better entry point, in my eyes. The shares now trade on a price-to-earnings ratio of just 12. This looks good value for money for a business with a remarkable growth story and solid track record, as well as exciting future prospects.

Plus, a dividend yield of over 7% – albeit pushed up by a falling share price – is attractive, and backed up by a healthy balance sheet. However, I do understand that dividends are never guaranteed.

Looking to the future, B&M’s aggressive growth has propelled it into the FTSE 100. This includes a recent move to snap up now defunct Wilko sites to expand its footprint.

Conversely, the recent cost-of-living crisis has shone a spotlight on consumers’ need to abandon branded labels, for cheaper non-branded products. Supermarket disruptors such as Aldi and Lidl, have capitalised. If this trend continues, B&M could see earnings and returns dented.

Caring for our furry friends

When the pandemic struck, there was a huge spike in spending on our beloved pets, boosting Pets At Home shares. As normality resumed, the shares, and performance of the business dwindled.

Over a 12-month period, the shares are down 17% from 364p at this time last year, to current levels of 299p. The shares hit highs of 518p in September 2021, but have dropped 42% from that point to current levels.

It’s hard to ignore Pets’ previous track record, as well as dominant market position. The firm was performing well prior to the pandemic too, so this wasn’t a flash in the pan. Plus, it looks to be investing in the right channels to turn around its fortunes, including a re-brand, which is pleasing to see.

Add to this the fact that according to Statista, pet ownership levels are the highest they’ve ever been in the UK, Pets At Home Group could recover nicely once economic turbulence subsides. At present, the shares still offer a dividend yield of 4.3%, which could make up for a lack of capital growth immediately.

From a bearish view, the amount of money spent during the pandemic led to a spike in pet care firms popping up. This increased competition could hurt earnings and returns.

Plus, Pets has to think about the added expense of its retail outlets. This could harm its bottom line, and the speed of any recovery. Many of the new kids on the block are online only, capitalising on the e-commerce boom.

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 B&M European Value and Pets At Home 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.

More on Investing Articles

Investing Articles

I reckon these 2 penny shares are hidden gems worth a closer look!

Some penny shares are well-known, whereas many others go under the radar, but that doesn’t necessarily mean they aren’t potentially…

Read more »

Investing Articles

Just released: our 3 best dividend-focused stocks to buy before August [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

2 FTSE 100 shares with blockbuster yields investors should consider buying

Our writer has noticed that these FTSE 100 shares offer mammoth dividend yields, and reckons investors should take a closer…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Down 36% and yielding 7.8%, is this FTSE 250 share a bargain?

Christopher Ruane looks at a FTSE 250 share with a sizeable dividend yield and a recent record of dividend growth.…

Read more »

Investing Articles

Is Barclays one of the FTSE 100’s best bargain stocks?

Right now, Barclays' shares are cheaper than those of FTSE 100 rival stocks Lloyds and NatWest. So should I buy…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Is a takeover offer about to boost the Rentokil stock price, and should I buy?

The Rentokil share price is up 10% on takeover rumours. Is it a stock to buy or one to be…

Read more »

Investing Articles

Here’s my Rolls-Royce dividend forecast for 2024-27!

Our writer considers whether the Rolls-Royce dividend might be reinstated in coming years, based on financial performance and stated payout…

Read more »

Investing Articles

What would I do if Rolls-Royce shares plunged 50%? History suggests a big decline is coming

While Rolls-Royce shares have delivered massive outperformance in recent years, they also have a history of significant declines.

Read more »