One FTSE 250 stock I’m bullish about is Safestore Holdings (LSE: SAFE). Here’s why I like the stock and think it’s worth considering.
Storage solutions for all
Safestore is a self-storage business serving personal and business customers. Personal customers can store away their belongings whereas businesses may use such spaces to store inventory. As I write, it is the largest self-storage business in the UK with 181 locations. It also has a presence in Europe too.
I noticed that Safestore shares have fallen considerably in recent months. In fact, since February, they’re down by 29%. As I write, they’re trading for 754p. In February, they were trading for 1,054p. At this time last year, they were trading for 851p, which is a 11% drop over a 12-month period.
I believe macroeconomic issues have pushed down many FTSE 250 stocks, including Safestore shares. These factors include soaring inflation and rising interest rates.
The bull and bear case
I believe Safestore is thriving in a burgeoning market. Demand for storage space has increased in recent years. From a commercial perspective, businesses require more storage due to the e-commerce boom. Due to this, Safestore has a good track record of performance in recent times. Although I do understand past performance is not a guarantee of the future, the company has increased revenue and profit for the past four years.
Next, Safestore shares would boost my passive income through dividends. A dividend yield of 3.9% is higher than the FTSE 250 average of just under 2%. Furthermore, Safestore has increased its dividend by 400% over the past decade which is pleasing to see. However, I do understand that dividends are never guaranteed.
Finally, Safestore shares look good value for money right now on a price-to-earnings ratio of just six.
Moving to the bear case, Safestore’s balance sheet has caught my eye and presents a risk. There is a fair bit of debt on its books which is a concern in a high-interest environment. This is because higher interest rates can make debt costlier to service. These costs can eat into profits and impact returns.
Another issue I’ll keep an eye on is Safestore’s growth plans. With lofty ambitions of acquiring new spaces, especially in Europe to boost its brand and presence, higher interest rates and property prices could make this harder to achieve. Furthermore, potentially overpaying for new properties could impact any returns as well as investor sentiment.
A FTSE 250 stock I’d buy
After reviewing the pros and cons, I’ve decided to add Safestore shares to my buy list for when I next have some cash to invest.
Safestore’s track record of performance and market position, as well as it passive income opportunity and current valuation all helped me make my decision. Due to the current economic picture, I’m expecting a bit of turbulence but overall I believe the shares will perform well over the long term.
