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It has been a difficult time for many. FTSE actions in recent months. Macroeconomic volatility has wreaked havoc.
One action I want to examine more closely is Travis Perkins (LSE: TPK). Should I buy or avoid the stock?
home improvement business
Travis Perkins is one of the UK’s leading home improvement and building materials retailers. He also makes money selling and renting tools. The company sells to commercial and DIY customers through its extensive store and online presence.
Over a 12-month period, Travis stock has remained fairly stagnant. As I write, they are selling for 758p. This time last year the shares were trading at 755p. Most telling for me is the fact that the shares have fallen 29% from 1,078p since the start of February. That’s when macroeconomic issues started to hit FTSE shares. Additionally, shares have fallen since yesterday’s poor third-quarter trading update.
The bull and bear case
From Travis’ third quarter update, the headline for me was that the company revised its full-year profit projections from £240 million to between £175 million and £195 million. He cited tough market conditions, including rising inflation and the cost of living crisis. Revenue and comparable sales have decreased 1.8% compared to the same period last year. This is disappointing but understandable as the housing market is in limbo and home repairs are not a priority for many right now.
From a bullish perspective, Travis is in a good position to benefit once the economic recovery begins. He has a large network and market presence. Furthermore, considering that housing demand, which is outstripping supply in the UK, needs to be addressed, it could recover from its recent problems. Performance and profitability could improve if this were to happen.
Currently, Travis shares trade with a price-to-earnings ratio close to 11. This is slightly higher than the benchmark for similar FTSE companies, which is 10.
Next, Travis stock offers a dividend yield of 4.8%. This is higher than the FTSE 250 average of 1.9%. However, with difficult trading conditions and earnings revision, there is a chance that the dividend could be reduced or even cut entirely.
A FTSE stock I’m watching for now
I have decided to keep Travis Perkins on my watch list for several reasons. First of all, I already own shares in Howden Joinery Group, a similar business in the industry. I feel it is better equipped to deal with the current headwinds and I also don’t want to overexpose myself in an industry by buying Travis stock. Next, the earnings review is discouraging. I want to see the results for the entire year before reviewing my position.
There are things I like about Travis, including its passive income offering, if it can maintain its dividend. In addition, a turnaround in the real estate sector and the economy in general could help the business recover from the current difficult period.
