B&M stock is up 8.7% this week. Should I buy?

While the B&M stock is soaring at the moment, is the discount retailer a buy right now for my long-term investment portfolio?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Discount retailer B&M European Value (LSE: BME) has surged in the last few days, with share prices up 8.7% this week. What is the reason for this rise and will I buy B&M stock for my portfolio? Let’s find out.

Reason for the rise

B&M was added to the FTSE 100 index in September 2020 as a result of the retail boom during the pandemic. Although share prices have increased 26% since, I see a lot of volatility in its performance in the market. So, what is the reason for the recent jump? I think the strong first-half (H1) showing this year might be the catalyst.

The company’s latest trading update for the financial year (FY) 2022 has highlighted that gross margins for the period were much higher than originally anticipated. As a result, pre-tax earnings for the 26-week period H1 FY2022 is between £275m and £285m, while analysts had predicted it to be around £235m.

The company also stated that “Group revenues year to date have been broadly in line with market expectations.” Strong margins during this period were attributed to the performance of general merchandise and seasonal categories.

Financial overview

First-quarter (Q1) 2022 financials look strong. Total group revenue increased 3.1% to £1.18bn. The company’s subsidiaries like Heron Foods also delivered strong performances. Other European markets like France delivered a 26.9% increase in revenue from Q1 2021, which I see as an encouraging sign for the B&M stock price.

But, on further analysis, I think that these figures might be slightly misleading when considering year-on-year revenue growth. This figure dropped by 4.4% from the 2020 pandemic retail boom. I think this is a sign of the consumer base returning to normal buying patterns.

I can see a drop off in sales in the near future as a real possibility. The company recognises this as well. The trading update states that “although the Group is well-positioned for the upcoming Golden Quarter, trading patterns and strength of customer demand remain highly uncertain for the balance of FY22.”

Will I invest in B&M now?

I think the company will struggle to effectively retain the consumer base it gained last year. Strong competition in the sector and razor-thin margins of the company are also concerning factors. Despite a strong H1 performance, I can see a drop-off when FY 2022’s interim results are released in November. A slide in share prices in this period will not be surprising to me.

Other retailers like Tesco and Sainsbury’s are much higher up on my list of potential investments at the moment. The larger market share and more dedicated consumer base make them a better bet for me in the retail sector.

This brings me to the company’s market performance. Since its induction into the FTSE 100 index, B&M has struggled to show me signs of stability. Despite being an investor focussed on long-term returns, I find this volatility concerning. Although the company could do very well over the next 10-year period, backed up by a solid 112.5% return over the last five years, I think I will wait for the interim results in November and see how the market reacts before I invest in B&M stock.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »