B&M European Value Retail (LSE:BME) is a FTSE 100 stock I want to add to my holdings for May. Here’s why.
Living costs soaring
Discount retailers have risen in popularity in recent years, especially as living costs soar. B&M is one of the best known discount retailers on the British high street. It serves approximately 4m customers a week and has nearly 700 stores.
B&M’s growth in recent years has been nothing short of remarkable. It has continued to gain market share as well as consistently open new stores throughout the country at a fast pace. This has led to a promotion to the FTSE 100 index, increased performance, and returns.
So what’s been happening with the B&M share price? Well, as I write, the shares are trading for 546p. At this time last year, the shares were trading for 551p, which is a decline of less than 1% over a 12-month period.
B&M shares are down 13% in 2022 to date from 634p at the beginning of January to current levels. I believe this is due to macroeconomic pressures, such as soaring inflation as well as rising costs. In addition to this, the events unfolding in Ukraine prompted a stock market correction that caused many shares to drop.
FTSE 100 stocks have risks
Despite my bullish attitude towards B&M shares, it does face real macroeconomic headwinds currently.
B&M, like many retailers that provide consumer goods, is facing rising costs. These costs need to be covered. If the costs aren’t passed on to the customer, profit margins are being squeezed, which can lead to a drop in shareholder returns. If the customers notice prices going up, they may turn to competitors, especially in times of economic uncertainty.
Another risk B&M is facing is the current supply chain crisis. I for one have noticed certain shelves at supermarkets being emptier than usual in recent months. B&M being unable to provide certain goods or not being able to provide them quickly enough due to the supply chain issue could affect consumer confidence, performance, and any returns.
Why I’d buy B&M shares
Firstly, I consider B&M shares excellent value for money at current levels. The shares are on a price-to-earnings ratio of close to 12. In addition to this, the shares pay a dividend which would help me build a passive income stream. B&M shares currently have a dividend yield of close to 3.5%. The FTSE 100 average dividend yield is between 3% and 4%.
As well as being cheap and paying a dividend, B&M shares are attractive due to a consistent track record of performance. I do understand past performance is not a guarantee of the future, however. Looking back historically, I can see revenue and gross profit has increased year on year for the past four years. Coming up to date, B&M released a Q3 update in January. The company mentioned a strong Christmas period and therefore decided to upgrade its full-year profit guidance.
I would add B&M shares to my holdings. According to its financial calendar, full-year interim results are due at the end of May. I expect it to report further performance and dividend growth, driving the shares upwards. I think adding the shares to my holdings before the end of May could be a shrewd move.