Segro (LSE: SGRO) has seen a 30% increase in share price in the past year. Over the past three years, it has almost doubled. The share price is now at around £12, which is not the most expensive but certainly not among the cheapest FTSE 100 stocks either.
But I still think the warehouse developer is a cheap UK share to buy for my portfolio. And that is because despite the increase in share price, its price relative to its financial performance is moderate. A look at this relative price is important for me as an investor, because it helps me benchmark it against other FTSE 100 shares.
Low relative price for the FTSE 100 stock
If its relative price, measured most commonly by the price-to-earnings (P/E) ratio, is lower than the average for FTSE 100 shares, I am tempted to take a closer look at it. This can happen for a number of reasons. For instance, the outlook for the company maybe weak, so investors do not buy the stock. Or maybe, it has more potential than is perceived at present.
I think Segro is one such stock with somewhat unrecognised potential. The real estate investment trust (REIT), which develops and manages warehousing properties, has a P/E of 9.8 times only. Compared to it, a stock like Lloyds Bank, which has underperformed in recent years, has a P/E of 39 times.
Strong long-term prospects
And its prospects look good too. The company is an important part of the e-commerce supply chain. And I think online sales are only going to grow over time, by the looks of it. Even though the pivot towards them was sharp during the pandemic, they are still strong after lockdown easing.
I think this can hold the likes of Segro in good stead over time. This will be particularly true in the near future, as the economy is expected to boom. Its first-quarter trading update is encouraging too. It grew its total rental value in the first quarter of the year and is also expanding its portfolio of properties.
In his comment on the update CEO David Sleath pointed to a positive outlook for the company “as well as our ability to drive further sustainable growth in rental income, earnings and dividends over the coming years.”
A cheap UK share to buy
There is of course the possibility that the future may not look as good as the past does. Online sales could slow down, the economy may not pick up as expected and the party may be over for e-commerce a few months from now. It is unlikely that there will be a dramatic pullback, but I think we can realistically expect some softening.
I still think, though, that just in P/E terms and given its performance last year, there is potential for its share price to rise further. In fact, for me it is a cheap UK share to buy for the long term.
