Howden Joinery Group (LSE:HWDN), best known as Howdens, is a growth stock firmly in my sights. The FTSE 100 incumbent’s shares look more attractive after the price dropped in recent months. Here’s why I would buy the shares and hold on to them.
Do it yourself and trade specialist
Howdens sells joinery, hardware, and appliances to trade and DIY customers. It is best known for being the UK’s number-one trade kitchen supplier. In fact, it currently has the largest share in the kitchen market here in the UK. Howdens has over 700 depots across the UK and Europe.
So what’s happening with the Howdens share price currently? Well, as I write, the shares are trading for 592p. At this time last year, the shares were trading for 832p, which is a 28% decline over a 12-month period.
The bear case
Macroeconomic issues such as soaring inflation, rising cost of materials, and the supply chain crisis have had an impact on the Howdens share price and performance. Rising costs means profit margins are being squeezed. If these costs are passed on to customers, there is a risk of losing customers too.
Supply chain issues have been causing issues in the wider DIY and construction industries too. A lack of product supply has hampered projects, and in turn, the performance of companies like Howdens.
I believe these issues are shorter term, although there is no end in sight at the moment. I will keep an eye on developments.
A FTSE 100 stock I’d buy
So to the positives then. Firstly, Howdens’ market position is a plus point for me, as well as its extensive reach and presence in the UK and in Europe. I think this position and presence should be able to offset the issues mentioned above and continue driving performance and investor returns.
Next, the current construction market is booming. For example, demand for homes in the UK is outstripping supply. A business like Howdens should be primed to benefit from this, especially as the top trade kitchen supplier in the UK.
Howdens has a good track record of growth and performance. I do understand that past performance and growth is not a guarantee of the future, however. From a growth perspective, it has gone from 14 depots in 1995 to more than 700 as I write. Consistent past performance is another positive factor when assessing the investment case.
Its most recent full-year results, for the period ending 2021, were excellent. Howdens reported revenue, profit, gross margin, earnings per share, and dividends per share all increased compared to 2020. Furthermore, its focus on growth is another positive factor — it opened a total of 40 new depots across the UK and France in the year, as detailed in the results.
Howdens shares would boost my passive income stream through dividend payments, although I am aware that dividends can be cancelled at any time. The shares currently have a dividend yield of over 6%. This is higher than the FTSE 100 average yield of 3%-4%.
Finally, Howden shares look good value for money on a price-to-earnings ratio of 11. This has been helped by the recent market correction and falling share price.
I believe Howdens shares could be a good addition to my holdings. Its growth trajectory to date, position in the marketplace, coupled with results and dividend payments and an eye on growth all excite me.