In 2023, B&M European Value Retail (LSE:BME) shares were on fire. And for those who snapped them up in October 2022, their investment more than doubled. But since then, it’s been a bit of a disaster.
At the start of 2024, the tide started to turn. Skip ahead to today, and the once-beloved discount retail stock has collapsed by more than 70%. Even in the last 12 months, things haven’t got any better, with almost 58% of its market-cap wiped out.
What happened? And is there an enormously lucrative comeback opportunity here now B&M shares are dirt cheap?
Impressive competition and adverse fiscal policy
The primary catalyst behind the downfall of B&M’s valuation was a series of profit warnings. It’s fast-moving consumer goods categories, which were stellar performers during and after the pandemic, that started to underperform.
Why? There are a lot of moving parts. But a big chunk of the blame can be put on Tesco. The UK’s largest supermarket giant has been investing aggressively in price and value perception over the last five years, especially during the cost-of-living crisis.
In particular, its Clubcard loyalty scheme rewards frequent spending. But B&M doesn’t have a price-led loyalty scheme of its own. And without that perception of value from personalised discounts and unique special offers, shoppers drifted away.
The result? Tesco not only defended itself against discounters like B&M but also stole market share from them.
To make things worse, changes to the Minimum Wage, increases to employer National Insurance contributions, higher inventory costs, and supply chain disruptions all landed at the same time. Throw in a £7m accounting error, and both earnings and investor sentiment tumbled.
With all this in mind, it’s not really a major surprise that the B&M share price dropped so sharply. But have investors accidentally created a buying opportunity?
Comeback potential
After all this chaos, the price-to-earnings ratio for B&M sits at one of the lowest in the FTSE 250, at just 5.3.
Clearly, investor confidence is weak. But that also means the bar has been set very low. And now that B&M has new leadership and a new strategy, that could pave the way to a lucrative recovery for its share price.
Following a strategic review, new CEO Tjeerd Jegen has outlined his ‘Back to B&M Basics’ turnaround initiative. The plan is to:
- Simplify the product range, reducing supply chain complexity
- Re-establish the perception of value through price cuts and promotion campaigns
- Optimise store layouts to improve customer experience
Will this work? On paper, it certainly sounds promising. But as is always the case with turnaround attempts, it all boils down to execution.
The company’s releasing its half-year results later this week. But since this mostly covers the period prior to this new strategy, investors will have to wait a bit longer to judge whether Jegen’s making the right moves.
With that in mind, I think it’s still too early to capitalise on the discounted valuation. Even more so, given that guidance has recently been cut again, suggesting there are still some near-term challenges to overcome. But it’s definitely a stock worth keeping an eye on.
For now, I’m looking elsewhere for bargain-buying opportunities.
