Halfords (LSE: HFD) shares nudged just over 5% higher when the market opened on 21 June following the release of the preliminary full-year results report.
That’s a minor move and probably means nothing unexpected troubled investors on the day. Indeed, most companies flag up their performance well in advance of results day. So most of the news is likely already in the price, as investors are often fond of saying.
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A rollercoaster ride
The company describes itself as the UK’s leading provider of motoring and cycling services and products. But before digging further into what the report contains, let’s set it in the context of what the share price and the financials have been doing over the past few years.
As I write, the stock changes hands at just over 202p. And that’s well down from the brief peak above 430p it reached in June 2021 – two years ago.
Back then, the business was benefiting from a boost in sales of bikes and bits driven by pandemic fallout. Everyone wanted bikes, and Halfords was happy to oblige.
But that was something of a bubble. And it followed a big plunge in the stock in 2020 when Covid first arrived. In March 2020, Halfords was below 70p. But that nadir was also short-lived.
The stock’s been on a bit of a roller coaster. But over the past year, it’s up about 25%.
However, there’s no denying what looks like a longer-term downtrend in net profit, earnings, and shareholder dividends.
Despite revenue with a compound annual growth rate of around 4.5% over the past few years, those other measures are lower.
This isn’t a business growing profits right now, it’s a declining business. And that may be why the valuation looks undemanding against traditional measures. The forward-looking earnings multiple is just over 10 for the year to April 2024 and the anticipated dividend yield is around 4.4%.
Can the business turn around?
I wouldn’t buy Halfords for dividend income or for growth right now. But it’s always possible that any business can turn itself around. So let’s see what the company’s been saying.
Chief executive Graham Stapleton described a “very challenging year”. And the main reason for that has been the cost-of-living crisis. Stapleton talked of “investment” in competitive pricing. And that means slashing prices to try to get customers through the doors.
But one consequence of that policy is the reduced forecasts for profits and earnings ahead. It seems to me that Halfords has suffered little choice. After all, low margins are better than no margins. And ongoing cash flow can help keep the lights on until better times arrive.
Looking ahead, one positive is that around 48% of sales came from service-related sales in the motoring category. And I see that as potentially being a source of steady repeat business.
If Halfords can rebuild its profitability in the coming years, a stock purchase now may prove to be a good investment. However, I’ve decided to watch from the sidelines.
