This FTSE 250 stock just saw a sharp drop. Would I buy it on dip?

The Marshalls share price took a beating after its latest trading update. Is it warranted?

| 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.

This has been a poor week for the FTSE 250 landscaper Marshalls (LSE: MSLH). Its share price has fallen by around 9% on account of its trading update, which investors clearly found disappointing. This has dragged its price down by almost 30% over the year, no thanks to the drop in general sentiment. The FTSE 250 index, too, has fallen some 10% in the past year. 

I bought the stock a while ago based on its fundamentals and the outlook for the company. And for sometime at least it was a winning stock in my portfolio. The question now, though, is whether it can bounce back or will it continue to languish. 

Trading update has strong positives

The FTSE 250 company reported a decent 7% increase in revenue for the four months of 2022 ending April, compared to the same time last year. It is also positive in its outlook for the rest of the year. It expresses confidence in being able to pass on increases in costs, which should bode well for its bottom line. 

Further, it also acquired Marley, a market leader in roof systems. Marshalls mentions it as being “cyclically resilient”, which could be a definite positive at a time when growth is slowing down. The UK just reported a contraction in economic output in March compared to February. 

In fact, the company itself points out in its update that the Construction Products’ Association has reduced its forecast for growth in UK market volumes for 2022 and 2023, because of a “more uncertain trading environment”. This is probably one reason why investors are downbeat about the stock now. 

Also, while its revenues have grown, the growth has slowed down from last year, which could be playing on investor sentiment towards the stock too. The company chalks it up to a strong comparator period, which included “record seasonal sales volumes”, however. 

Healthy FTSE 250 stock

Keeping everything in mind, I definitely do not see a reason to sell Marshalls now. In fact, considering that the company expects its debt levels to remain in check, I will continue to hold on to it even in the event of an economic slowdown, which could impact it. Also, it posted healthy numbers for last year as well, which is encouraging. It is also a dividend stock, with a yield of around 2.7%. This is marginally higher than that for the FTSE 250 as a whole. 

What I’d do about Marshalls

However, I do see why falling growth could be a deterrent for investors. This is especially so as the FTSE 250 stock is not exactly cheap with a price-to-earnings (P/E) ratio of almost 20 times. This is higher than even many financially healthy FTSE 100 companies. Still its outlook looks good to me. And if its earnings rise, its P/E could drop. I might just buy more of it in the coming days. 

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.

Manika Premsingh has positions in Marshalls. 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.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »