In a year when an awful lot of FTSE stocks have gone up in price, those that haven’t tend to stick out. This is particularly true if they happen to be a big household name.
Today, I’m looking at one heavy faller and asking whether it’s madness to think that this market laggard could actually become a huge winner in time.
Big loser
The stock in question is discount retailer B&M European Value Retail SA (LSE: BME) — or plain old B&M to you and me. It’s share price has pretty much halved in 2025 so far. And it’s not hard to see why.
A reduction in discretionary spending has continued to impact the sector. Even those firms that flog small ticket items — and might be considered more defensive as a result — have seen like-for-like sales slip. B&M’s margins have also come under pressure due to an increase in costs, including higher National Insurance contributions. That’s not ideal when those margins weren’t exactly huge to begin with.
A not-insubstantial proportion of the share price fall came only last week following news that full-year adjusted earnings of between £470m and £520m was now expected. This was lower than the previous estimate of £510m-£560m.
At least some of this could be attributed to the company previously failing to recognise £7m in overseas freight/transportation costs due to an operating system update. Under the circumstances, it’s no surprise that B&M’s chief financial officer has announced he will be stepping down.
Cheap stock
So is this now an absolute basket case of an investment? Not necessarily. The shares certainly don’t trade at a demanding valuation. A price-to-earnings (P/E) ratio of seven’s very cheap compared to FTSE stocks as a whole. That suggests a lot of bad news is already priced in. From this perspective, it might only take a slight improvement in sales for buyers to begin circling the stock.
There’s also far less shorting activity around this stock when compared to other big household names such as Sainsbury’s, Domino’s Pizza and Greggs. Right now, it would appear that only a small minority of usually-very-well-informed traders are willing to bet that this stock has further to fall.
For those that covet passive income, B&M shares currently have a forecast dividend yield of 8.8% too. Whether all that cash actually arrives however, will depend on those (new) earnings targets being hit. If not (and some analysts are already sceptical) a cut looks likely. This is especially as the amount of debt carried by the FTSE 250 member has also been rising.
Value trap?
All told, I’m not sure the stage is set for B&M to deliver an ‘explosive’ recovery, at least for now. Newly-appointed CEO Tjeerd Jegen clearly has his work cut out just to steady the ship. As well as those issues already highlighted, this will include responding to concerns over complex ranges and inconsistent pricing.
An update on Q2 is due in mid-November. Given just how shaky things look in the near-term, I reckon investors should tread carefully. Only those with a very high risk tolerance might wish to consider buying now.
Evidence of a further deterioration in trading certainly won’t be liked the market and a cheap stock can always get cheaper.
