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This FTSE 100 stock has a low P/E and a 4% yield but is it a ‘buy’?

The FTSE 100 is full of stocks that appear to offer strong value. One such stock is Kingfisher (LSE: KGF), which owns both B&Q and Screwfix, as well as a number of other home improvement stores in Europe, Russia, and Turkey. Right now, KGF shares can be picked up on a low forward-looking P/E ratio of just 11.4 and an attractive dividend yield of 3.9%. Do those metrics make the stock a ‘buy’? I’m not so sure.

Weather boost

Second-quarter results released today don’t look too bad, with like-for-like constant currency sales for the quarter ending 31 July rising 1.6%. That’s certainly an improvement from first-quarter results, which saw like-for-like constant currency sales drop by 4% as a result of “exceptionally harsh weather conditions.”

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This quarter’s positive performance was boosted by strong weather-related sales (the recent heatwave boosted demand for outdoor goods) at the group’s UK & Ireland division, with quarterly sales at B&Q and Screwfix rising 3.6% and 5.5% respectively. However, the group’s performance was still impacted negatively by poor sales in France (which makes up over a third of sales), with sales declining 1%. CEO Veronique Laury stated: “The performance of Castorama France has been more difficult and as a result we have put additional actions in place to support our full-year performance in France with the benefits expected to come through in H2.”

While today’s results show improvement, I’d like to see more evidence of a turnaround before buying the shares. The stock certainly looks cheap right now on a P/E of 11.4, however, sales are forecast to rise only 1.1% this year and analysts are still downgrading their forecasts for FY2019 and FY2020. I wouldn’t be surprised if the stock remains cheap for a while, so I don’t believe there’s a rush to buy.

A better buy?

One FTSE 100 company I’d be more inclined to buy is international packaging and paper specialist Mondi (LSE: MNDI). Its shares aren’t that much more expensive than Kingfisher’s, trading on a forward P/E of 13.7, but the company appears to have considerable momentum at present.

Mondi released half-year results at the start of August and the numbers looked solid. Group revenue was up 4%, while underlying profit before tax surged 25% and basic underlying earnings per share jumped 26%.

Looking ahead, the outlook for Mondi seems bright. Analysts are upgrading their forecasts and currently expect full-year sales growth of 7.3% this year, along with 25% growth in net profit. A dividend of €0.72 (prospective yield of 3.1%) is expected for the year, up from €0.62 last year, which would represent nine consecutive dividend increases.

The shares have pulled back by around 7% over the last week or so, and as such, I believe now could be a good time to take a closer look at the stock. Independent research house CFRA upped its price target for the stock to 2,450p this week, which is around 18% above the current share price.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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