But in the case of Wickes Group (LSE: WIX), the DIY company seems to have achieved both simultaneously. Not only is the price up over 60%, but it’s delivered a 15% return on equity (ROE) and boasts a 4.6% dividend yield.

Those are impressive numbers by any measure! But a few metrics alone don’t tell the whole story. Before diving in, I decided to take a closer look.

Debt and dividend sustainability

While Wickes Group demonstrates genuine profitability, high debt combined with falling earnings makes me question its dividend sustainability.

Earnings growth is down 23.5% year on year, sending the dividend payout soaring above 100%. Usually that would be a major concern but in Wickes’ case, the company has impressive cash coverage. It generated £32.2m in free cash flow in 2024 and maintains a notable net cash position of £158m. Not only does that cover dividends but enabled a £25m share buyback programme, £20m of which was announced in March.

Management’s held the dividend flat at 10.9p for three consecutive years, suggesting caution rather than aggressive growth. With forecast EPS growth of 25.9% annually, the payout ratio’s expected to normalise around 61% by 2026, improving sustainability.

Growth and risks

Wickes has strengthened its market position to a near-6% share through a differentiated model combining retail, trade services and installation. Its TradePro membership programme, now exceeding 632,000 members, drives consistent double-digit growth from professional customers.

Digital improvements, including the ’15-minute Click & Collect’, have enhanced customer experience while competitor exits (Homebase, Wilko, Carpetright) have driven expansion opportunities.

But risks remain. The UK cost-of-living crisis continues impacting discretionary spending, particularly on larger installation projects. Design & Installation revenue fell 13.9% like-for-like in 2024, though Q4 showed some recovery.

National Insurance contribution increases are also putting pressure on retailers, adding around £6m to Wickes’ annual expenses. With the stock already looking overvalued (a price-to-earnings ratio of 24), it can’t afford to disappoint investors in the next earnings call.

My verdict

When screening for stocks to buy, it can be easy to get drawn in by a few impressive metrics. Wickes is a solid example of why it’s important to always dig deeper and get the bigger picture.

For UK investors, the company’s debt situation is a major red flag — particularly given the consumer discretionary exposure and the elevated payout ratio.

On the flip side, cash flow looks strong enough to cover dividend payments for the immediate future. If the company can afford to prioritise dividends over debt, then it could be a reliable source of income.

However, many other UK stocks boast a similar yield with better coverage and sufficient profitability. As such, I don’t see any compelling reason to consider Wickes at this time.

The post Up 60% with a 4.6% yield! Is this the best growth and income stock in the UK? appeared first on The Motley Fool UK.

That said, I have often found that some of these frankly less sexy firms can offer great value propositions. This is because their relative anonymity means they are not among the first shares people buy when looking at stocks.

Consequently, there may be a considerable gap between their market price and their true value. The former is whatever investors will pay for any stock at any given time. This can be significantly influenced by the broader popularity of the company. The latter reflects fundamental factors in the underlying business.

To ascertain whether such a price-value gap currently exists in Wickes, I took a deep dive into the business. I also ran all the key numbers related to its stock valuation.

Strong results

Wickes’ H1 2025 results, released on 10 September, saw volume-led growth momentum across all areas of the business.

Retail sales revenue grew 6.8% year on year to £634.4m, with its ‘TradePro’ sales rising 10%. This is a loyalty scheme open to UK tradespeople. Design & Installation revenue rose 2.1% to £213.4m, marking the third consecutive quarter of sales growth.

Overall, the firm’s total revenue increased 5.6% to £847.9m over the half. This drove a 7.9% rise in adjusted gross profit to £312m and a 14.2% increase in adjusted operating profit to £40.1m.

A risk to the business remains any further surge in the cost of living, which may deter people from spending on home improvements.

However, consensus analysts’ forecasts are for Wickes’ profits to rise by an annual average of 16% to end-2027. And it is ultimately growth here that drives any firm’s share price and dividends higher over time.

Significant undervaluation

The discounted cash flow (DCF) model pinpoints where any firm’s share price should trade, based on cash flow forecasts for the underlying business. The DCF for Wickes shows its shares are 32% undervalued at their current £1.95 price. Therefore, their fair value is £2.87.

In my experience, a fundamentally solid asset tends to converge to its fair value over time.

The firm is also continuing with its £20m share buyback programme, which tend to be share-price supportive.  

High dividend yield

Wickes delivers a dividend yield of 5.6% at present, compared to the FTSE 100’s 3.4% average and the FTSE 250’s 3.3%. Better still, analysts forecast that its dividend yield will rise to 5.6% this year, 5.9% next year, and 6.2% in 2027.

If dividend compounding were used then a £10,000 holding in the 5.6%-yielding stock would make £7,484 in dividends after 10 years. After 30 years this would rise to £43,446. By that time the total value of the holding would be £53,446. And this would pay an annual dividend income of £2,993 by that point.

I already have a well-balanced portfolio of growth and dividend shares, so I am not looking to add to it right now. However, I think Wickes is well worth the consideration of investors whose portfolios it suits.

The post After a strong H1, this FTSE 250 gem forecasts annual earnings growth of 16% and looks 32% underpriced to fair value! appeared first on The Motley Fool UK.

As things stand, there are three stocks set to join the mid-cap index. These are Wickes (LSE:WIX), Gamma Communications (LSE:GAMA), and Avon Technologies (LSE:AVON).

Should I buy any of these soon-to-be FTSE 250 stocks?

Wickes

The first thing I look for in a stock is the growth rate. I want to invest in a firm that is growing strongly and set to continue doing so in future. Therefore, I’m ideally wanting some sort of secular growth that the company is capitalising upon.

Immediately, this makes me think Wickes might not be a good fit for my portfolio. The share price is up 46% year to date, but still about 11% lower than when it listed in 2021 after being spun off from Travis Perkins.

Wickes sells DIY products and demand will generally wax and wane depending on what’s going on with inflation and the economy.

In the first 17 weeks of 2025 though, group revenue increased by 6.9% year on year to £533m. It said it was capturing market share as more local trade professionals choose Wickes. 

During the early May bank holiday, the company enjoyed its best-ever week for sales of compost and top soil. But that was due to the nice weather, which unfortunately can’t be relied on in the UK. If inflation spikes and the economy contracts, growth could slow.

There’s a 5% dividend yield here and an undemanding forward price-to-earnings (P/E) ratio of 11.6, based on next year’s forecast. The firm could also end up benefitting from the Labour government’s house-building drive.

However, looking at the growth rate, this business doesn’t excite me. In 2023, revenue was £1.55bn. In 2026, it’s expected to be just under £1.7bn, meaning there’s not much top-line growth here.

Avon

Avon Technologies is more interesting to me. The firm makes things like gas masks, combat helmets, and various breathing apparatus. I expect demand for these to stay strong as Europe re-arms and global defence spending remains elevated. 

First-half revenue rose nearly 17% to $148.7m, with the order book closing up 24% ($247m). Solid stuff.

That said, a permanent ceasefire in Ukraine and US defence budget cuts are potential risks to medium-term growth here.

The stock is currently trading at 30 times forecast earnings for this fiscal year (ending September), which is a bit too pricey for me.

Gamma

The one that piques my interest the most here is Gamma Communications, which has a £1.1bn market cap. It provides cloud-based communication and connectivity solutions, aimed mainly at small and medium-sized enterprises. 

Naturally, a UK recession could impact customer acquisition growth. But Gamma has a growing presence in Spain, Germany, and the Netherlands, so is becoming increasingly diversified. 

In recent years, the firm has achieved a compound interest growth rate (CAGR) of 12% in revenue and 14% in earnings. Future growth looks strong too, as Gamma is quite disruptive by offering telephony, internet, mobile, and security services through a single platform.

Finally, the valuation is attractive, with the growth stock’s forward P/E ratio at just 12.5. I’ve put the stock on my watchlist while I dig in a bit more.

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First, when I buy a stock my minimum target holding period is five years, although ideally I’d want to hold it for decades. Second – and I see this as a fault – like many investors I’m reluctant to crystallise my losses. Not this time though.

The stock in question was home improvement retailer Wickes Group (LSE: WIX). On 2 August I admitted that this “isn’t the whizziest stock on the FTSE All-Share but I’m hoping that will change”.

Don’t blame it for the ailing share price

Shares in the building material supplier had done poorly after it was spun off from Travis Perkins in April 2021, but I felt Wickes had been punished by events beyond its control. Namely the cost-of-living crisis, which drove up materials and labour costs, while hitting demand from doer-uppers.

Its Design and Installation operations unit has been hit particularly hard. While people could find cash for smaller projects, many put bigger jobs like kitchens and bathrooms on hold.

I popped Wickes into my Stocks and Shares ISA on 13 September, thinking it would rebound nicely as inflation and interest rates fell, and the UK’s first-half economic recovery gathered pace. I also thought it would benefit from the Labour government’s house building drive. With the stock yielding 7% and trading at 10.29 times trailing earnings, I couldn’t resist.

My assumptions fell to pieces, one by one. The UK economy slowed in the third-quarter, as businesses and consumers fretted over October’s Budget. After growing 0.7% in Q1 and 0.5% in Q2, GDP edged up just 0.1% in Q3. It actually fell 0.1% in September.

Chancellor Rachel Reeves move to hike employer’s national insurance charges will hit Wickes, which employs more than 8,000 across 233 stores.

I think there are better FTSE stocks out there

A high number are on the minimum wage, which was also hiked by an inflation-busting 6.7% from April, in another blow to Wickes. With narrow operating profit margins of just 4.4%, this is going to hurt.

It’s also become clear that Labour’s aim to build 1.5m homes over five years is a little optimistic. Finally, inflation is climbing again, with the Bank of England predicting it will be back to 3% next year. In September, when I bought Wickes, it was down to 1.7%.

So I crystallised my 15% loss on 27 November. I did get one dividend though!

Today, Wickes shares look even cheaper trading at 9.74 times earnings, while the yield is higher at 7.41%. One day, I may kick myself for my impatience.

So why was I so quick to sell when I’ve never considered ditching my other underperformers? The underlying problem is that Wickes didn’t excite me enough in the first place.

It’s a solid business, with a high yield, but with events turning against it I couldn’t sustain my interest. There are so many other stocks I’d rather buy for my ISA today. I’ll use the money for something I (hopefully) won’t be in such a rush to sell.

The post Buying this UK share was my biggest ISA mistake in 2024 appeared first on The Motley Fool UK.

I was looking for shares that I thought might benefit from the new Labour government, in particular its plans to get Britain building again, by bulldozing through proposals to build 1.5m new homes in five years.

I’ve been doing a bit of doer-upping myself, and where did all my tradesmen go? Wickes.

A desirable FTSE stock with a well-appointed yield

While I never believed Labour would build the equivalent of 300,000 homes a year – something we haven’t done since the 1950s – I thought it showed willing. So I bought Wickes shares on 13 September only to see them fall within days.

So far, I’m down 13.11%, but other investors will be happier as the Wickes share price is up 22.89% over 12 months.

I buy stocks with a long-term view, so I’ll take this short-term dip on the chin. My Wickes shares have been falling for the same reason that my Taylor Wimpey shares are falling.

Hopes for a string of interest rate cuts next year have faded with the Bank of England warning Labour’s Budget may be inflationary. So too Donald Trump’s presidency. This will squeeze homeowners, property buyers and consumers, which means my tradesmen won’t spend as much time at Wickes.

The Budget has hit Wickes on a second front. Chancellor Rachel Reeves upped the national insurance rate on employers from 13.8% to 15%, cut the NI wages threshold from £9,100 a year to £5,000, and increased the minimum wage by 6.7%.

Wickes employs more than 8,000 across 233 stores, which isn’t as many as I expected. But higher staff costs will squeeze a business that works to low margins of just 4%.

Wickes shares would be lifted by falling interest rates

The board issued its Q3 trading update on 22 October confirming full-year profit outlook remains unchanged, boosted by falling costs. That was issued before the Budget on 30 October though.

While retail revenues climbed 2.2% to £945.3m in the nine months to 28 September, design and installation revenues fell 14.1% to £245.9m as shoppers held back from spending larger sums on bathrooms and kitchens. Total group revenues were down 1.6% to £1.19bn.

Building is a seasonal business. In Q3, Wickes benefitted from customers catching up on outdoor projects delayed by the wet spring and early summer, but it expects this pent-up demand to subside in Q4.

The eight analysts offering one-year share price forecasts for Wickes have set a median target of 176.6p. If correct, that’s growth of 15.36% from today.

The trailing yield is now 7.12% with cover a little thin at 1.4. The board has held the dividend per share at 10.9p for three years now, which isn’t ideal either.

The shares look cheap trading at 10.1 times trailing earnings but I won’t buy more today. I’ll sit tight and look forward to my next dividend, and hope we’re all wrong about interest rates.

The post After falling 13% this ultra-high-income share yields 7.25% with a P/E of just 10.1! appeared first on The Motley Fool UK.

Sod’s law seems to dictate that whenever I buy a stock, the first thing it does is fall. That’s what happened to home improvement specialist Wickes (LSE: WIX).

I added the £411m group to my portfolio on 13 September, three days after it posted a drop in interim profits. The shares held up on the day, as the board predicted a better second half. With grim inevitability, they fell 6% or 7% after I bought them. So it goes.

I’ll get dividend income, too

I bought Wickes shares because I felt they would benefit from Labour’s plans to ramp up housebuilding, alongside a wider consumer recovery as the cost-of-living crisis faded and the Bank of England cut interest rates.

Personally, I think Labour will undershoot its ambitious house building targets, but still think the economy will pick up.

Homeowners are still reluctant to green light big projects such as new kitchens, which has hit Wickes’ Design and Installation division. But with the shares trading at 11.44 times earnings and yielding 6.29%, I think they’ll prove a great source of growth and income over the longer run.

I love buying top growth shares once the heat has gone out of them, and that’s why I splashed out on JD Sports Fashion (LSE: JD) in January. This was a fortnight after the FTSE 100-listed trainer and trackie specialist had issued a profit warning following disappointing Christmas sales.

Inevitably, the shares fell another 10% or so after I bought them – sod’s law strikes again! – but now they’re flying. I’m already up 35%. Over one year, the shares are up 5.87%.

What we need now is a consumer recovery, both in Europe and the US. That’s not guaranteed, of course. I’ve noted that trainer giant Nike is having a hard time, and as a key JD Sports Fashion brand, that could have a knock-on effect.

Another share for the longer run

However, trading at 12.69 times earnings, the JD Sports Fashion share price still looks good to go. With a yield of just 0.69%, I don’t expect to be lavished with income.

FTSE 100-listed packaging giant Smurfit WestRock (LSE: SWR) looked solid when I bought it in June last year. And once again its shares also crashed within days, after it unveiled a controversial hook-up with US peer WestRock and a dual listing on New York and London. Markets reckoned Smurfit had overpaid to seal the deal, and again, I was staring at a double-digit loss. So it goes yet again.

I responded by averaging down, and I’m glad I did. While the Smurfit WestRock share price has climbed just 3.97% over 12 months, I’m up 24.4%.

I think there’s still value here with the shares trading at 12.67%, plus there’s a solid 3.54% trailing yield.

Again, Smurfit WestRock needs a consumer recovery to power on, while there’s always the risk the merger could misfire or we see a backlash against e-commerce packaging. But I think it will prove its worth over time.

The post 3 stunning FTSE growth stocks I’m buying and holding for the long term appeared first on The Motley Fool UK.

Home improvement retailer and garden centre Wickes Group (LSE: WIX) isn’t the whizziest stock on the FTSE All-Share. I’m hoping that will change.

The building material supplier may be a household name, but it’s only been trading on the stock market since 28 April 2021, when it was spun off from Travis Perkins. So far, there’s been little for investors to shout about.

Hidden FTSE gem

The shares opened at 263.9p in 2021. Today, they trade at 156p, which is a drop of 40.89% in just over three years. They’re up 13.1% over 12 months, though, as investors sniff an opportunity.

Wickes largely missed the pandemic DIY boom, floating just as it was drawing to a close. It then swam straight into the cost-of-living crisis, which drove up materials and labour costs, while hitting demand from cash-strapped doer-uppers.

Now I’m hoping the DIY and building sector will pick up as wages are rising faster than inflation, making people feel better off in real terms, and interest rates fall, boosting house sales. Labour’s planned building boom may help here.

It won’t happen overnight, though. People have to start buying homes before they do them up, and that will take time to feed through to sales. 

Yet, I think this could be a good time to get on board, especially with the Wickes share price trading at a modest 10.29 times trailing earnings.

Better still, it offers a bumper forecast yield of 7.01%. I’m not anticipating much dividend progression in the short term, though. The board held the full-year dividend at 10.9p share in 2023, and expects to hold again in 2024. Still, I won’t be complaining if that comes through. The forecast yield for 2025 is 7.04%.

Wickes looks good value

Revenues and pre-tax profits have been bouncing around in recent years, as my table shows. Again, I’m blaming that on the downtown.

The good news is that Wickes has been gaining market share. Also, it’s spent a lot of money refurbishing its 230-odd stores, and most of that investment is now behind it. Now it can enjoy the subsequent sales boost. Adjusted pre-tax profits are forecast to climb slightly to £43.6m in 2024. Not great, but I think the real action will be further down the line.

I do have concerns. Operating margins are low at 4%. All those stores cost money to run. The 7.7% return on capital employed doesn’t excite either. Yet with a market cap of £378m and enterprise value of £937m, Wickes appears to have plenty of room to grow if sentiment picks up.

Its kitchens and bathroom design wing should also revive once households feel ready to greenlight bigger DIY projects. Clearly, the stock isn’t without risk and I’d only buy with a long-term view. But I will buy it.

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Given that Wickes’s sales gave grown at 8.6% on average over the last five years, its profits are forecasted to increase and its 2023 forecasted dividend yield is 7.2%, its stock might be a bargain that’s too good to miss. So, I should take a closer look.

A fixer-upper

Wickes is a home improvement retailer that operates through 230 stores and online platforms. Its core customers are local tradespeople and DIYers. But it also has a flourishing do-it-for-me (DIFM) business in which it arranges and pays for someone to install what its customers select in-store and online.

I should begin by seeing how the company is doing now. On 31 Jan 2023, Wickes published its trading update for the last quarter of 2022. Coming in at five pages long, it was pretty brief, but here are the key points from it:

• Like-for-like core sales were up 11.5% year-on-year (YoY) for the quarter and 3.5% for the year;
• Like-for-like DIFM sales were up 34.5% YoY for the quarter and 26% for the full year;
• DIFM order book was lower at the end of 2022 than in 2021 but higher than in 2019;
• Full-year 2022 adjusted profit before tax is expected to be in line with market expectations;
• In 2023 energy costs are expected to be £10m higher, and wage costs £3.5m higher than in 2022.

The Wickes share price did trend lower on the day of the trading report, but it’s still in the range it has been in since the start of 2023. Overall, management is happy with the recent trading performance but does seem to be warning about 2023. I am just not seeing anything to get too excited about here, nor much to get gloomy about.

Are Wickes shares too good miss?

Compared to the average P/E ratio for speciality retailers of 10.0, Wickes looks cheap. Kingfisher is a close rival that trades at a P/E ratio of 11.2.

Now, I own Kingfisher in my Stocks and Shares ISA. I don’t want to own two of these types of stocks, so should I swap one for the other? Well, according to Statista the UK DIY & Hardware Store market is forecast to be $34bn in 2023 — yes, that’s unhelpfully dollars. Now after some conversions, Wickes has about 5% of the market based on analyst estimates. Kingfisher is about 10 times larger in terms of revenues so it should have about half the market.

And I don’t see much in the way of competitive advantages in this market. So the most efficient and safe operator, with the largest market share is the one I would pick. Kingfisher is bigger and has higher operating margins and returns on capital employed. It is less leveraged, and its liquidity position looks more secure. Although historically higher, Wickes’s sales growth is forecasted to be comparable with Kingfisher’s in the next couple of years.

Wickes shares do look cheap, but I am going to stick with what I have got.

The post Can I afford to miss a Wickes shares bargain? appeared first on The Motley Fool UK.

Wickes share price slumps after HY results

As a quick reminder, Wickes is a home improvement retailer with over 200 store locations in the UK. It sells to consumers and the building trade alike with products such as DIY supplies, gardening products, and other home improvement products.

So what’s the current state of play with Wickes shares? As I write, they’re trading for 138p. They slumped 20% yesterday after mixed results were released. Looking back further, the stock was trading for 254p at this time last year, which is a 45% drop over a 12-month period.

Mixed results and outlook ahead

So let’s take a look at Wickes’ half-year results posted yesterday. The first thing that stood out, and probably had the biggest impact on the Wickes share price falling, was the fact its revised profit forecast of £72m-£82m for the full year was lower than the previously forecast £83m.

I believe this due to a couple of reasons. Current macroeconomic headwinds, such as soaring inflation and rising costs could have a material impact on profit margins as well as performance and returns. Furthermore, the current cost-of-living crisis caused by these headwinds could see demand for products fall. Again this would affect performance profit levels. During economic volatility such as we are seeing now, consumers may not prioritise DIY and home improvement projects.

There were some positives from the trading update, however. Wickes said that sales compared to the same period were up. Furthermore, comparing sales over a three-year period, sales were up over 20%. Furthermore, it has a strong balance sheet and a healthy order book moving into the second half of the trading year.

My verdict

I can understand why the Wickes share price fell sharply yesterday and has been falling for some time. Macroeconomic issues out of its control are having a detrimental impact on performance, demand, and investor sentiment.

On the other side of the coin, I see some potential in Wickes. First of all, I don’t see the issues noted above being longer term. Next, infrastructure spending is set to rise in the coming years and retailers like Wickes should benefit. A prime example of this is the surge in house building in the UK linked to demand for homes outstripping supply.

Looking at Wickes’ fundamentals, the shares look cheap currently on a price-to-earnings ratio of just six. Furthermore, they would boost my passive income stream through dividend payments. It is worth noting that dividends are not guaranteed, however.

My investment strategy has always been to buy and hold for the long term and Wickes strikes me as a bit of a contrarian buy. At such cheap levels, I view adding a small number of shares to my holdings as a small risk. I am fully expecting some further bumps in the road, however.

The post Is the falling Wickes share price a bargain primed for long-term recovery? appeared first on The Motley Fool UK.

Revised profit outlook

In the results, the big point was that the company now expects pre-tax profit to be in the £72m-£82m range. This is a revision lower from the £83m previously stated.

Part of this revision is due to the uncertain demand that the company faces from consumers. Wickes is a well-known DIY retailer, and has a large base of clients.

Although I wouldn’t call the products expensive, carrying out new DIY projects in the current economic backdrop isn’t something I would imagine is high up on people’s agendas. The mentality of making-do with what I’ve got it is more in line with my thinking, rather than an urge to redo my bathroom. What this boils down to is that during tough economic times, people are unlikely to want to commit to spending on new projects.

Lower demand ultimately leads to lower profit, which is exactly what Wickes is forecasting could happen.

Cost inflation biting

In the report, it noted that “we continue to manage supply chain inflation responsibly by passing through cash cost increases while maintaining our leading price position.”

Even though this is being contained at the moment, inflation is forecast to rise even higher (into double-digits) at the end of the summer. Therefore, I think investors are concerned about the implications of this for Wickes.

The comment also doesn’t fill me with confidence about how it’s being handled. If it passes cost increases to customers, demand will decrease as goods are more expensive. It can’t maintain the position of being the cheapest if it keeps raising prices.

An alternative is to take the hit on inflation at the business side and not pass it on. Yet this would increase costs and reduce profit margins. Either way, it’s not good.

Limited positives for the Wickes share price

It wasn’t all gloomy reading for shareholders. Total sales were up 0.8% versus the same period last year. On a three-year comparison, sales jumped 23.4%.

The business also spoke of the strong balance sheet and solid order book that it has going into H2. Therefore, even if the outlook isn’t rosy, the company is at least in a good position as it heads into the storm.

Ultimately, the contents of the report have caused a knee-jerk move lower this morning. Even though it contained some good news, I don’t think it’s a company that I want to be investing in at the moment.

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