I think this value stock could be booted out of the FTSE 100

Jon Smith flags up a value stock that’s at the lowest level this year, but recent problems could spell trouble for the short-term future.

| More on:

Image source: Getty Images

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.

Each quarter sees a reshuffle in the FTSE 100 and FTSE 250. Underperforming stocks in the FTSE 100 that have a shrinking market cap can get demoted to the FTSE 250, while high-flyers in the FTSE 250 can get promoted instead. Here’s a value stock that I believe could be in danger of being demoted in the next change.

Up and down

Last month, the latest reshuffle happened, so there isn’t another one imminently. However, as of right now, the stock with the lowest market cap in the FTSE 100 is Vistry Group (LSE:VTY), with a value of just over £3bn. The next-largest firms are Frasers Group, EasyJet and Hiscox. All of these companies have a market cap below £4bn.

By contrast, St. James’s Place in in the FTSE 250 but has a valuation above £4bn, so clearly there will be some changes later this year to rebalance. As a disclaimer, the changes happen based on the size of the company at a certain point in time. Therefore, the companies referred to could gain or lose value in the future and that means the firms would no longer be in consideration for the reshuffle.

A recent fall

The company in the FTSE 100 I’m most concerned about is Vistry Group. Back in Q2, I was optimistic about the outlook for the housebuilder. Things have changed massively over the past month. The stock is down 31% over this period, although I do note that it’s still up 16% over the last year.

The main catalyst was a report released last week from the business that warned profits for the year would be lower due to underestimating building costs. The 2024 adjusted pre-tax profit forecast has been cut by £80m to £350m. This comes after several projects in the southern division had costs that were underestimated.

The update commented that “we believe the issues are confined to the south division and changes to the management team in the division are under way“. However, this isn’t a great sign that the senior leaders at Vistry weren’t aware of this. The damage to the stock is both from the financial hit but also the reputational concern.

If the stock does drop out of the FTSE 100, this could put further pressure on the share price.

A rebound is possible

I think that the company is a value stock right now, as it’s at the lowest level this year. If the management team can quickly shake off the concerns around credibility, there’s no reason why the share price can’t recover in the coming year.

Let’s also not forget that the property sector is performing well right now. With more interest rate cuts coming, mortgage prices should fall, boosting demand even further.

However, my worry is that the share price could go even lower in the short term. Research teams ranging from JP Morgan to Berenberg have cut their price targets for the homebuilder, which isn’t a great look.

Therefore, I’m not going to invest right now but am placing it on my watchlist.

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.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Vistry 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.

More on Investing For Beginners

Investing Articles

This latest FTSE 100 dip could be an unmissable opportunity to pick up cut-price stocks

The FTSE 100 has pulled back with the government’s policy choices creating some negative sentiment. But this gives us a…

Read more »

Investing For Beginners

Here’s what a landmark legal ruling could mean for the Lloyds share price

Jon Smith mulls over whether issues with historical motor finance commissions could spell trouble for the Lloyds share price into…

Read more »

Investing Articles

£10 a day invested in UK shares could one day create a second income of over £3,000 a month!

Mark David Hartley outlines a strategy he’d use to aim for a second income that gets bigger over time, by…

Read more »

Investing Articles

£20,000 in savings? Here’s how I’d aim to turn that into passive income of £903 a month

Our writer shares one approach to passive income investing, spotlighting a quality FTSE 100 stock he recently added to his…

Read more »

Investing Articles

Should I sell my FTSE All-Share index fund and buy a S&P 500 tracker instead?

Harvey Jones is wondering whether now is a good time to invest more money in the S&P 500, after a…

Read more »

Investing For Beginners

2 UK shares that insiders have been buying this month

Jon Smith reviews two purchases of UK shares by directors that caught his eye over the past week and explains…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing For Beginners

If I’d invested £5k in a FTSE tracker fund after the pandemic crash, here’s what I’d have now

Jon Smith explains the extent of his potential gains if he'd invested in a FTSE tracker fund during the Covid…

Read more »

Investing For Beginners

3 ways I’m trying to future-proof my Stocks and Shares ISA for 2025 right now

Jon Smith runs through different measures including targeting dividend shares to help his Stocks and Shares ISA for next year.

Read more »