UK shares have largely performed well over the last six months when looking at the FTSE 100. The UK’s flagship index has delivered close to a 5% total return compared to the 3% loss from the US S&P 500 over the same period.
Yet, not all British businesses are having a great time. Three examples of FTSE stocks that have taken a hit lately are:
- Ocado Group – down 25%
- JD Sports Fashion – down 54%
- Vistry (LSE:VTY) – down 56%
Needless to say, these losses aren’t pleasant for shareholders. But sometimes, stocks that take a tumble can transform into incredible buying opportunities. Just take a look at what happened to Rolls-Royce. The engineering giant saw more than half of its market cap wiped out following the pandemic. Then it made a stellar near-800% comeback a few years later.
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Taking a closer look
To determine whether a buying opportunity exists, it’s important to understand why the shares are seemingly in freefall in the first place. Ocado appears to be struggling with the high cost of transitioning into a robotics company. Meanwhile JD Sports is experiencing a cyclical downturn in demand for athletic footwear and apparel. But what about the worst performer on this list, Vistry?
Looking at its full-year results, Vistry reported a welcome 7% boost to revenue and home completions, which both grew to £4.3bn and 17,225, respectively. However, the trouble starts lower down on the income statement where operating profits collapsed by 44% and net debt essentially doubled from £89m to £181m. That’s a far cry from what investors were expecting, especially since management had promised to reach a net cash position in 2024.
Cash generation has once again been highlighted as a top priority for this enterprise in 2025. Whether that will materialise, investors will have to wait and see. However, the UK planning permission reforms being put forward by the government could serve as a welcome tailwind to get Vistry back on track.
A buying opportunity?
With the shares trading at a forward price-to-earnings ratio of 8.7, the homebuilder is looking rather cheap. By comparison, its competitors are trading notably higher, with Barratt Redrow at 12, Bellway at 15, along with Persimmon and Taylor Wimpey at 13.
Providing that Vistry can get its cash generation problems sorted and the balance sheet moves closer towards a net cash position, investors appear to be looking at an attractive entry point. Even more so, given the Bank of England is expected to continue cutting interest rates in 2025, sparking fresh life in British homebuying activity.
However, as previously mentioned, management promised to fix the cash generation problems last year to no avail. And with other homebuilders delivering relatively better results, it suggests that competitive pressures may also be adversely impacting the business. As such, Vistry doesn’t look tempting and worth considering, in my view.
As for the other two businesses, they too have their challenges. So, be sure to do plenty of research digging into the risks as well as potential rewards.
