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.
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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.
