A ridiculously cheap FTSE 250 stock to buy right now?

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home

Image source: Getty Images

FTSE 250 stock Howden Joinery Group (LSE:HWDN) is a kitchen specialist that continues to be at the top of my ‘buy’ list this month. Yet despite posting rock-solid results, many investors remain sceptical that this company can stay in front of the macroeconomic headwinds. At least, that’s the impression given by its cheap valuation.

However, looking at Howden’s track record, the firm has a habit of proving sceptics wrong. So let’s take a closer look at what could be a bargain buy today.

The kitchen gold rush

In 2020, with the government temporarily suspending stamp duty, the British housing market flourished. And this trend continued well into 2022 before growth in property valuations began to taper.

This momentum resulted in a 12-year high in UK home flipping. And with record levels of individuals refurbishing properties, Howden Joinery enjoyed some tremendous growth. In 2021, revenues surged by over 35%, with operating income more than doubling!

But in 2022, this growth slowed significantly, with the top line expanding by just 10% and profit coming in only 3.4% higher. With a lot of growth being pulled forward, paired with a general slowdown in the housing market, it’s clear that the kitchen gold rush is over. That’s a big risk for Howden.

But it doesn’t mean the long-term potential isn’t exciting. Delivering double-digit growth in the middle of a cost-of-living crisis is quite an achievement, especially after such a previously explosive year. Moreover, these short-term headwinds may turn into long-term tailwinds for this FTSE 250 stock.

With families staying put for longer, the desire for home renovation will likely creep back over the next couple of years. This could create yet another opportunity for management to send revenue and profits surging. And this time, the firm has even more depots in the UK and France to capitalise on the next round of momentum.

A record of success

With excess capital consistently being generated from operations, shareholders have been reaping the rewards of rising dividends as well as share buybacks.

In fact, the company has repurchased nearly 10% of its shares outstanding over the last five years. As such, management has had little trouble outperforming analyst expectations.
Story continues

2019

2020

2021

2022

Expected EPS

34.14p

24.75p

50p

55.35p

Reported EPS

34.8p

24.8p

53.01p

65.6p

However, just because the FTSE 250 stock has outpaced expectations in the past doesn’t guarantee this performance will continue in the future.

With interest rates back on the rise, the cyclicality of the housing sector may prove to be quite a tough challenge for the business to maintain growth, let alone expand it. And should earnings suffer, dividends along with share buybacks will likely follow suit. This uncertainty seems to be responsible for the group’s cheap-looking price-to-earnings ratio of only 10.2.

However, that’s far behind the industry average of around 15 times. Therefore, this risk factor may be already baked into the valuation. That’s why I’ve already added shares to my personal portfolio.

And with the demand for home renovation unlikely to disappear for decades to come, Howden Joinery looks like a lucrative opportunity for patient investors. The post A ridiculously cheap FTSE 250 stock to buy right now? appeared first on The Motley Fool UK. More reading

Zaven Boyrazian has positions in Howden Joinery Group Plc. The Motley Fool UK has recommended Howden Joinery Group Plc. 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.

Motley Fool UK 2023

Tags:

click-4-warranty listed on couponmatrix.uke2save listed on couponmatrix.ukoddballs listed on couponmatrix.ukshowcase-cinema-de-lux listed on couponmatrix.uksmiffys listed on couponmatrix.uksnaptrip listed on couponmatrix.uk
click-4-warranty listed on couponmatrix.ukKeep your car protected quickly and affordable with Click4Warranty, the insurance provider with over fifteen years experience working for UK drivers. With three levels of cover available to match budgets of all sizes, you could bump up your policy at minimal expense by using a Click4Warranty discount code from Groupon. Whatever parts of your vehicle you’re seeking to insure and whatever mileage your four wheels have already covered, rest assured you’ll find the policy to match at Click4Warranty. The team at Click4Warranty want new customers to have plenty of leeway when it comes to confirming their policy, which is why each policy now comes with an extended 21 days cooling-off period once taken out. A customer can cancel their policy if you have any second thoughts during this period, with a full refund guaranteed – whatever your reason for cancelling. This gives every driver ample opportunity to research other providers if needed – though we doubt you’ll find a price more competitive than Click4Warranty’s. There are many reasons why drivers should choose Click4Warranty to protect their vehicle. The brand offers no maximum mileage limit on policies for one, whilst the ability to knock the cost of cover with a Click4Warranty voucher code is a sweet bonus too. Top it off with the fact that any parts covered in a policy that fail an MOT will be covered too and you can easily see why so many opt for Click4Warranty for quick, effective protection.
e2save listed on couponmatrix.ukWhy bother paying more for your phone when e2save can find you your dream phone plan without the nightmare price? Whether you prefer Apple or Android, with an e2save voucher from Groupon you could end up saving yourself a small fortune, so have a look at what’s on offer today. You’ll find all the best carriers on offer, as well as some really great handsets to go with your sim, so what are you waiting for?
oddballs listed on couponmatrix.ukThey say it’s what’s underneath that counts, so what better excuse to embrace the fun and funky underwear offered by OddBalls! Use an OddBalls discount code from us to cut the cost of comfortable yet cool garments that will add some appeal to your underwear drawer - with options for men, women, teens and kids in stock, you’ll be spoilt for choice as you shop. With its dedication to raising awareness of testicular cancer as well as its devotion to style, you can’t fail to be won over by OddBalls - shop the collection today!
showcase-cinema-de-lux listed on couponmatrix.ukDiscover the best in cinema entertainment at Showcase Cinema. With over 21 Showcase and Showcase Cinema de Lux screens around the country you’re always in for a treat when visiting a Showcase Cinema. Grab your Showcase vouchers and get ready for the ultimate cinema experience. Enjoy 360 Dolby Atmos audio technology and ultra-high-definition screens all carefully designed to make you feel part of the on-screen action from the comfort of your seat.
smiffys listed on couponmatrix.ukDressing up is all about donning an alter ego for the night – whether that’s a Disney villain, 1920s flapper or certified Ghostbuster – and the fancy dress magic starts at Smiffys. Whether you’re heading out for a hen do, dressing as your favourite Harry Potter character for World Book Day or celebrating Halloween in style, a Smiffys discount code from Groupon will keep the party going for less. Check out our round-up of the top Smiffys deals and then explore the collection of costumes, wigs, makeup and accessories to create an outfit to remember!
snaptrip listed on couponmatrix.ukEnjoy last-minute self-catered cottages and apartments with Snaptrip and make your spontaneous holiday a getaway to remember. Stay in the UK and explore Britain's natural wonders, including the Brecon Beacons, Lake District, Dartmoor, or go further afield and bathe in the rich culture of France, Italy or Spain. Simply book with a Snap promo code and receive a generous discount on your reservation. Whatever your location or budget, Snaptrip has a brilliant holiday deal for you.