When exploring the FTSE 250, a lot of stocks are looking cheap right now. The UK’s growth index doesn’t seem to be getting a lot of love from investors as sentiment surrounding the British economy remains pretty weak. However, despite investor attitudes, institutional analysts have started exploring the index for bargains.
UBS has recently described the FTSE 250 as being “in the right place, at the right rate”, adding the index to its ‘top investment ideas for 2025’ list.
So why are analysts turning bullish? And could Safestore Holdings (LSE:SAFE) be one of the biggest bargains of the year?
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Capitalising on domestic growth
The UK economy’s still struggling to meaningfully move in the right direction in terms of GDP growth. Yet with the government earmarking £100bn of investment through the National Wealth Fund, capital projects across infrastructure, healthcare, energy, and homebuilding are set to ramp up over the next five years.
For reference, that’s roughly the equivalent of 3.7% of GDP. And since small- and mid-cap stocks, like those found in the FTSE 250, are often closely tied to domestic demand, a boost to economic growth could prove to be a powerful catalyst for gains. Or as UBS puts it: “For those looking to ‘bet on Britain’ amid a complex global backdrop, the FTSE 250 offers a unique blend of resilience and growth potential”.
A bargain?
Safestore Holdings sits relatively comfortably towards the middle of its parent index with a market-cap of £1.3bn and a share price hovering around 610p. Yet when compared to its earnings, the stock’s trading at a dirt cheap price-to-earnings ratio of just 3.6!
The self-storage operator is currently navigating through unfavourable market conditions. With families staying put in houses longer than in previous years due to higher interest rates, consumer demand for self-storage has suffered.
Meanwhile, small- and medium-sized enterprises (SMEs) that make up the bulk of Safestore’s corporate clients also appear to be in a money-saving mode. In fact, card payment processor Dojo recently carried out some research and discovered that 30% of SMEs are struggling with financial stress, due to inflation and higher interest rates.
With that in mind, it’s not too surprising that revenue and earnings have taken a hit, dragging the share price in the wrong direction. Yet following its latest quarterly results, the worst might be over. The UK self-storage market appears to be slowly recovering, returning Safestore back to modest growth and higher like-for-like occupancy. If this trend continues, it may not be long before the Safestore share price starts moving in the right direction.
Of course, recoveries can take longer than expected. Changes to National Insurance contributions for businesses mean Safestore’s likely to see a 7-8% rise in operating costs, hitting margins. As such, the British self-storage industry may have to make considerably more progress before Safestore’s bottom line returns to growth mode.
Nevertheless, in the long run, I remain cautiously optimistic about this FTSE 250 stock, especially at its current valuation, which I feel is worth considering. That’s why it’s already in my portfolio.
