Despite all the stock market volatility, FTSE 100 shares have proven to be a sanctuary for investors in 2022 and 2023. The UK’s flagship index continues to offer stability. At the same time, the rest of the market reacts to rising interest rates and persistent inflation.
A benefit of the uncertainty within the financial markets is numerous emerging buying opportunities. And while small-caps seem to be stealing the attention of many growth investors, several blue-chip stocks are managing to deliver solid growth and value to shareholders.
And one company that’s got my attention as a candidate for my Stocks and Shares ISA is B&M European Value Retail (LSE:BME).
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Double-digit growth from a retailer?
Obviously, the idea of investing in a collection of discount stores across the UK is hardly what many would call exciting. Compared to a pharmaceutical giant curing cancer, selling stuff on shelves is undeniably dull. But sometimes, boring can be highly lucrative.
Most FTSE 100 retailer shares, like Tesco, are in the volume business since profit margins are miniscule. For B&M, this remains largely true. However, by carefully blending inventory with low-cost goods and high-margin products, the company has achieved operating margins in excess of 10%!
For a retailer, that’s pretty exceptional. And with the cost-of-living crisis ramping up, footfall to the B&M network of stores is rising rapidly. So much so that in its latest quarterly results, sales grew by 13.5%. What’s even more impressive is the continued success of its international expansion in France, with revenue surging by as much as 29.1%!
While profit margins have suffered in recent months, management has become stricter with managing costs and reloading inventory. And while investors will have to wait until November to see a detailed breakdown of the financials in the next interim results, the discount retailer appears to be on the right track.
Even FTSE 100 shares have risks
In my opinion, one of the biggest threats facing this firm today is inventory management. B&M sells a blend of consumer staple and discretionary products. And while the former category tends to be less problematic, the latter is responsible for the higher margins.
Products such as outdoor furniture proved immensely popular during the months of lockdown and helped the bottom-line surge. But once people started to return to the office, demand waned quickly, and B&M was left with a lot of slow-moving inventory.
Management was able to adapt and clear out these products without compromising its bottom line. But overstocking of products based on poor estimates of future demand could quickly rack up storage costs and compromise shareholder returns.
Needless to say, in this scenario, shares of this FTSE 100 enterprise will likely take a turn for the worse. But given the group’s impressive track record to date, it’s a risk worth taking, in my opinion. That’s why I’m considering adding the business to my Stocks and Shares ISA once I have more capital at hand.
