Most investors are happy to snap up cheap shares if there’s good potential for a strong recovery over the coming year. Therefore, when I spotted a FTSE 250 company that was down 50% in the past year and had positive analyst ratings, I decided to do some more digging.
Time to consider buying?
Recent headaches
I’m talking about Marshalls (LSE:MSLH). At first glance, Marshalls might not look like the most exciting business in the market: the company manufactures and supplies a wide range of building products to the trade and also to the public.
Over the past year, there’s no doubt the stock’s underperformed. Yet this is more down to the sector rather than anything company-specific that’s gone wrong. Marshalls is deeply tied to construction and home improvement, both of which have been under pressure from interest rates staying higher for longer and weaker consumer confidence.
That’s translated into softer demand, particularly in its core landscaping division, where profitability has effectively collapsed due to lower volumes and customers trading down to cheaper products. This saw the CEO step down in late November, and the full-year 2025 results show a 16% year-on-year drop in adjusted pre-tax profit.
Could it be cheap?
Based on the seven analysts covering the stock, the average 12-month target price is 239.71p. Based on the current price of 136.1p, this reflects a 76.1% increase. There’s no guarantee this will happen, but if it did, then it could turn a £1k investment into £1,761.
The experts who put out the ratings clearly believe the stock is undervalued right now. When I consider it from a fundamental view, I can see why. Management is already taking action, cutting costs and targeting around £11m in annual savings. This alone could help rebuild profit margins and increase earnings even if demand stays subdued.
At the same time, parts of the business are holding up well. This includes the roofing division, which has been boosted by the Marley acquisition and demand linked to building regulations and energy efficiency.
Further, the firm doesn’t need a booming market to improve, just a stabilising one. If UK construction activity steadies, even modest volume recovery combined with pricing discipline could drive a meaningful rebound in profits.
The bottom line
Despite analyst forecasts and my own view, there’s no guarantee of a rapid price increase over the coming year. If interest rates stay higher for longer, housing and renovation demand could remain weak.
Given the inflationary pressures that could result from the energy price shock, it needs to be carefully monitored. However, I do think the share price fall has gone too far, and feel it’s undervalued. On that basis, it’s a stock I’m seriously thinking about buying, and like-minded investors could also consider it.
