Image source: Getty Images
Hidden under some bigger, more recognizable names in the FTSE 250 index, there is a diamond that is overlooked, in my opinion.
I mean Safe store (LSE: INSURANCE). I've been keeping an eye on the stock for a while and the stock price has fallen to become a great entry point for me.
Here's why I like the stock and why I plan to buy some shares as soon as I can.
Storage
Safestore is the UK's leading self-storage company with an excellent profile, track record and dominant market position. As well as being a leader in the UK, it is now also the second largest company of its kind in Europe.
Shares are down 19% in a 12-month period. This time last year they were trading at 939p, compared to current levels of 754p.
I'm not worried about the share price falling. I understand this is due to a difficult macroeconomic outlook. This same malaise has hurt many real estate and real estate stocks.
The case of the bull
Let's be honest, storage isn't exactly exciting or glamorous. Fortunately, I don't always look for excitement in my investments. I look for leading companies, with potential for juicy profitability and future growth. Safestore ticks these boxes for me!
Safestore's leading position in the UK has helped the company grow to become an attractive investment. However, its continued growth is what excites me and makes me believe it could continue its upward trajectory.
It is slowly eroding the European market and I am convinced that management is also eyeing the number one spot on the entire continent. The recent purchase of a large facility in Germany proves this for me. The European self-storage market is small and has a lot of growth potential.
It's worth remembering that demand for storage space has skyrocketed in recent years. This is related to the rise of e-commerce, as well as a growing population. Safestore has capitalized and looks like it could continue to do so.
Breaking down some fundamentals, I will start with its assessment. Safestore shares look attractive after the recent drop to a price-earnings ratio of 15. On top of this, a dividend yield of just over 4% is attractive to help me increase my passive income stream. However, I am aware that dividends are never guaranteed.
Notable risks
First, higher interest rates are concerning. I think this is the main reason why the stock has fallen recently. These same higher rates put pressure on customers from a cost of living standpoint, as higher costs can force people to give up their storage space to pay for necessities. This could harm Safestore's performance levels. Additionally, property valuations may also be reduced due to higher rates.
The other issue for Safestore is its current debt level of just over £800m on its balance sheet. Let's be honest, most companies have some type of debt. However, in some cases, debt can hinder growth aspirations. Additionally, paying down debt could take priority over rewarding investors. I'll be keeping an eye on this through the company's performance updates.
Overall, I'm a fan of Safestore as a business and as a potential investment. Its dominant market position, growth prospects, valuation, and passive income opportunities are hard to ignore.
