The last two years have been pretty rough for B&M European Value (LSE:BME) shares.
Despite most discount retailers thriving in a high cost-of-living environment, B&M found itself being left behind due to strategic missteps. And investors have punished the FTSE stock severely, with over 70% of its market cap wiped out between the start of 2024 and the end of 2025.
Yet in 2026, the tide might finally be turning. Why? Because B&M shares are actually beating the market!
A discounted discounter
Less than a quarter into 2026, and B&M shares have steadily ramped up by 6%. And a £5,000 investment at the start of January is now worth £5,300.
By comparison, the FTSE 100 has only mustered a 3.6% return so far this year. And the FTSE 250 has been even weaker with a 1.1% loss.
So, why are B&M shares now outperforming?
The momentum seen so far is being driven by a variety of factors. However, it essentially boils down to a recovery bounce after years of catastrophic decline.
Accounting errors, inventory gluts, and a string of profit warnings under previous leadership have done a lot of damage to both the business and investor confidence.
But with a new CEO at the helm, hope of a turnaround has started to emerge. And with B&M shares now trading at a dirt-cheap price-to-earnings (P/E) ratio of just 7.3 compared to the wider retail industry average of 18.5, value investors have started taking notice.
The start of a comeback?
Earlier this year, B&M published its latest quarterly results covering October to December 2025. The results were fairly mixed and included yet another guidance cut. But there were also some early green shoots of genuinely encouraging progress.
For example, December saw a 3% bump in like-for-like growth. That may not seem groundbreaking, but it’s the first meaningful positive organic growth figure seen in over a year. And even better, this momentum continued into January, suggesting it might not just be a fluke driven by the holiday season.
As for the downgraded outlook, while frustrating, it’s worth highlighting that this comes as a result of management hitting the reset button by accelerating stock clearance and rebuilding its value credentials in the eyes of customers.
All in all, the new management team have seemingly laid the foundations of a multi-year recovery. And providing there are no hidden cracks, B&M shares could continue to beat the market in 2026 and beyond.
What to watch
Even with some encouraging early progress, there’s still a long road ahead.
Cutting prices to recapture lost market share appears to be a prudent move. But being forced to do it at a time when minimum wage hikes are driving up labour costs is far less than ideal, squeezing profit margins from two directions at once.
This earnings pressure is only compounded by the £2.5bn of outstanding debts & equivalents on the balance sheet. And while the bulk of its loans don’t mature until 2028 to 2030, the clock is nonetheless ticking for management to restore free cash flows.
Given these risks, I want to see a bit more progress before snapping up any shares. But if management continues to deliver and the P/E ratio remains in dirt-cheap territory, it’ll likely be hard not to be tempted.
