Wickes (LSE:WIX) shares continue to slide and yesterday’s half-year results didn’t help. Based on current levels, is the Wickes share price a potential bargain with the potential to recover in the longer term? Let’s take a closer look at recent performance and risks, and decide if I should buy the shares for my holdings.
Wickes share price slumps after HY results
As a quick reminder, Wickes is a home improvement retailer with over 200 store locations in the UK. It sells to consumers and the building trade alike with products such as DIY supplies, gardening products, and other home improvement products.
So what’s the current state of play with Wickes shares? As I write, they’re trading for 138p. They slumped 20% yesterday after mixed results were released. Looking back further, the stock was trading for 254p at this time last year, which is a 45% drop over a 12-month period.
Mixed results and outlook ahead
So let’s take a look at Wickes’ half-year results posted yesterday. The first thing that stood out, and probably had the biggest impact on the Wickes share price falling, was the fact its revised profit forecast of £72m-£82m for the full year was lower than the previously forecast £83m.
I believe this due to a couple of reasons. Current macroeconomic headwinds, such as soaring inflation and rising costs could have a material impact on profit margins as well as performance and returns. Furthermore, the current cost-of-living crisis caused by these headwinds could see demand for products fall. Again this would affect performance profit levels. During economic volatility such as we are seeing now, consumers may not prioritise DIY and home improvement projects.
There were some positives from the trading update, however. Wickes said that sales compared to the same period were up. Furthermore, comparing sales over a three-year period, sales were up over 20%. Furthermore, it has a strong balance sheet and a healthy order book moving into the second half of the trading year.
My verdict
I can understand why the Wickes share price fell sharply yesterday and has been falling for some time. Macroeconomic issues out of its control are having a detrimental impact on performance, demand, and investor sentiment.
On the other side of the coin, I see some potential in Wickes. First of all, I don’t see the issues noted above being longer term. Next, infrastructure spending is set to rise in the coming years and retailers like Wickes should benefit. A prime example of this is the surge in house building in the UK linked to demand for homes outstripping supply.
Looking at Wickes’ fundamentals, the shares look cheap currently on a price-to-earnings ratio of just six. Furthermore, they would boost my passive income stream through dividend payments. It is worth noting that dividends are not guaranteed, however.
My investment strategy has always been to buy and hold for the long term and Wickes strikes me as a bit of a contrarian buy. At such cheap levels, I view adding a small number of shares to my holdings as a small risk. I am fully expecting some further bumps in the road, however.