A core part of my investment strategy is to look for stocks that could grow and provide me consistent and lucrative returns in the long term. One growth stock I have my eye on is Safestore (LSE:SAFE). Should I buy or avoid the shares?
Self-storage and warehousing
Safestore is a self-storage business that provides units to consumers and companies for warehousing purposes. In fact, it is the largest operator of its kind in the UK, and has an international presence with sites in France, the Netherlands, and Spain.
At current levels, Safestore shares are trading for 919p. They are down 14% over a 12-month period as they were trading for 1,078p at this time last year.
Due to the explosion of e-commerce, which requires lots of warehousing space, as well as a burgeoning housing market, storage and warehousing businesses have done well in recent times. This trend is expected to continue, according to Statista.com, which is why I am considering Safestore as a major player and a potential growth stock.
Challenges ahead
One challenge that could have a detrimental impact on Safestore shares is the saturated market it operates in. Lots of firms are vying to leverage heightened demand for storage solutions into profit and growth. Furthermore, there are low barriers of entry into the storage market which could invite other players that may be able to eventually undercut and overtake Safestore and others.
I also noticed that Safestore experienced a lot of success in recent years due to the pandemic, as well as the growing housing market. This led to increased demand. The current economic outlook and the cost-of-living crisis could result in weaker demand in the shorter term. This could hurt investor sentiment, not to mention performance and returns.
The bull case and my verdict
So let’s take a look at some positive aspects of Safestore shares. I’ll start with its performance track record. I am aware that past performance is not a guarantee of the future. However, looking back, I can see that it has grown revenue and gross profit for the past four years in a row. With demand for storage space set to continue growing, it could continue this trend too.
Next, Safestore shares would boost my passive income stream through dividend payments. The current dividend yield on offer is 2.7%. This is higher than the FTSE 250 average of 1.9%. I am aware that dividends can be cancelled at any time, however.
Finally, the shares look dirt-cheap right now on a price-to-earnings of just over four. This tells me that if performance and returns were to increase, the share price could follow suit.
In conclusion, favourable market conditions, the belief that demand for self-storage is only set to increase, as well as the passive income opportunity help me make my decision. I would be willing to buy Safestore shares for my holdings.