FTSE 250 incumbent Safestore Holdings (LSE:SAFE) has seen its shares rise by over 60% over the past 12 months. Could this upward trajectory continue and should I add the shares to my holdings? Let’s take a look.
Self-storage provider
Safestore is the UK’s largest self-storage group, with 178 stores in total with a presence in France, Netherlands, and Spain too. There has been an exponential rise in demand for self-storage space in recent years, which is good news for the company. The burgeoning housing and e-commerce markets have contributed towards the success of self-storage and warehousing businesses.
As I write, Safestore shares are trading for 1,335p. At this time last year, the shares were trading for 803p, which is a 66% increase over a 12-month period. The shares reached over 1,400p in early January but have pulled back recently slightly due to market volatility.
FTSE 250 stocks have risks
Safestore operates in a very competitive market with lots of choice for consumers and businesses alike. Furthermore, there are low barriers of entry into the market. This tells me a competitor or a new upstart could undercut Safestore’s pricing and prise away customers.
Safestore shares are trading close to all-time highs. This is particularly risky as any negative news or a drop in performance could send the share price on a downward trajectory.
A lot of Safestore’s recent success has been linked to the economy. The burgeoning housing and e-commerce markets have boosted performance and the shares. If either of these markets were to slow, this could affect demand for Safestore’s services. This would in turn, squeeze profit margins and affect any investor returns I would hope to make.
My verdict
I do understand that past performance is not a guarantee of the future. Looking back, I can see that Safestore has increased revenue and profit year on year for the past four years. Coming up to date, a recent Q1 update released in February was also positive. From a financial point of view, revenue increased 16% compared to the same point of view. This is a good start to the financial year. From an operational perspective, occupancy levels and maximum letting area were both up compared to last year too.
With Safestore performing well, it has managed to produce a respectable dividend too. At current levels, it sports a dividend yield of just under 2%. The FTSE 250 average is just over 2.5%. Safestore’s yield is enticing as these dividends would make me a passive income if I purchased the shares.
At current levels, Safestore shares look cheap too. The current share price offers a price-to-earnings ratio of just over seven. I consider this a bargain based on the company’s performance, track record, and place in its respective market as a leader.
Overall I like Safestore Holdings and believe it is very much an under-the-radar FTSE 250 stock. It produces a decent dividend that would make me a passive income. More importantly, I believe it has positioned itself well to become a market leader and still has lots of potential to grow in a growth sector. I’d add the shares to my holdings.