The shares of FTSE 100 discount retailer B&M European Value Retail (LSE:BME) have taken quite a hit in 2024. Shareholders have suffered a 27% drop in market value as the group’s latest performance has struggled to maintain last year’s momentum.
As a result, the stock now trades at a price-to-earnings multiple that lags firmly behind industry leaders like Tesco, J Sainsbury, and Marks and Spencer Group. But this might present an exciting buying opportunity for long-term investors to consider. In fact, B&M may have the potential to more than double in the coming years. Here’s why.
What’s going on with the B&M share price?
Last year’s surge of inflation pushed a lot of shoppers into the arms of budget retailers like Lidl and Aldi. However, B&M also managed to attract higher levels of footfall, translating into impressive top-line growth on the back of higher sales volumes. And with management carefully cultivating some of the highest profit margins in the sector, earnings followed suit.
Unsurprisingly, the stock price soared, climbing by almost 90% since its low point in October 2022. Yet since then, share price momentum has somewhat reversed. When inflation cooled off earlier this year, shoppers started returning to their usual habits of going to large local supermarkets. And the impact of this became abundantly clear in B&M’s first quarter results with growth all but evaporating.
To be fair, management had some pretty tough and unusually high comparables to beat. Nevertheless, with the growth story seemingly over, investors moved on, and the stock took a tumble. But is the growth story really at an end?
Explosive potential on the horizon
Despite what its name would suggest, only 10% of sales actually come from Europe right now, specifically France. The rest stems from the UK, home to a fairly mature retail sector with stubbornly static company market shares. Unsurprisingly, it’s the British segment of B&M’s business that’s struggling to deliver growth right now. But the story in France is quite different.
Discount/budget retailers are a relatively new phenomenon, with the market still dominated by Tesco-equivalents like Carrefour and E. Leclerc. However, data from Kantar reveals that retailers like Lidl and Aldi have been steadily expanding their market share. And it’s a trend that B&M has been busy capitalising on.
Despite only being a small chunk of its overall business, B&M France has been rapidly expanding. Even in the latest ‘disappointing’ first-quarter results, French stores still delivered 9.6% revenue growth at near-double-digit profit margins.
With an estimated retail market size of €557.7bn, B&M has barely scratched the surface of its total addressable market size. And if it can replicate its success in the UK, the firm’s top and bottom line could be on track to double, potentially taking its share price with it. After all, the last time B&M doubled its revenue stream from £2.4bn in 2017 to £4.8bn in 2021, shareholders reaped a 115% return after dividends!
Obviously, there’s no guarantee of the firm’s success nor is the timeline clear. It’s not the only business chasing this opportunity, and other retail peers currently have a head start. Nevertheless, given the group’s impressive track record, I remain optimistic for the long run. That’s why I’m planning on snapping up shares while they’re still cheap once I have more capital at hand.
