Image source: Getty Images
One FTSE 250 The stock I’m bullish on is Safestore Holdings (LSE: INSURANCE). Here’s why I like the stock and think it’s worth considering.
Storage solutions for everyone
Safestore is a storage company serving personal and business customers. Personal clients can store their belongings, while businesses can use such spaces to store inventory. As I write it is the UK’s largest warehousing company with 181 locations. It also has a presence in Europe.
I noticed that Safestore stock has fallen considerably in recent months. In fact, since February, they are down 29%. As I write, they are trading for 754p. In February, they were trading at 1,054 pence. This time last year they were trading at 851p, which is a fall of 11% over a 12-month period.
I think macroeconomic issues have driven down many FTSE 250 stocks, including Safestore shares. These factors include soaring inflation and rising interest rates.
The bull and bear case
I think Safestore is thriving in a burgeoning market. The demand for storage space has increased in recent years. From a business perspective, businesses require more storage due to the rise of e-commerce. Because of this, Safestore has a good performance record in recent times. While I understand that past performance is no guarantee of the future, the company has grown its revenue and profits over the past four years.
Next, Safestore stock would increase my passive income through dividends. A dividend yield of 3.9% is higher than the FTSE 250 average of just under 2%. Additionally, Safestore has increased its dividend by 400% over the last decade, which is nice to see. However, I understand that dividends are never guaranteed.
Lastly, Safestore stock appears to be good value for money right now with a price-to-earnings ratio of just six.
Moving on to the bearish case, Safestore’s balance sheet caught my attention and presents a risk. There is quite a bit of debt on its books, which is a cause for concern in a high-interest environment. This is because higher interest rates can make servicing debt more expensive. These costs can affect profits and affect returns.
Another topic I will be keeping an eye on is Safestore’s growth plans. With big ambitions to acquire new space, especially in Europe to boost its brand and presence, higher interest rates and property prices could make this more difficult to achieve. Additionally, potentially overpaying for new properties could impact profitability and investor sentiment.
One FTSE 250 share I would buy
After reviewing the pros and cons, I decided to add Safestore stock to my buy list for the next time I have some cash to invest.
Safestore’s track record of performance and market position, as well as its passive income opportunity and current valuation, helped me make my decision. Given the current economic outlook, I expect some turbulence, but overall I think stocks will perform well over the long term.
