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Currys (LSE: CURY) is one stock in the FTSE 250 Index that has caught my eye of late. The electricals retailer’s value has been on the march, climbing 55% to £1.23 a share before the market open on 19 May.
Investors who’ve been along for the ride are sitting pretty. But with the stock now trading near its 52-week high of 124p, is there still value left or has that ship sailed for those waiting on the sidelines?
What’s happening to the price?
The company’s recent share price surge has come on the back of stronger financial performance. Like-for-like group sales increased by 2% for the first half, with a strong showing in the UK & Ireland market.
Times have been tough recently, but the company had reported a return to profitability for the year ending April 2024. Pre-tax profits of £28m represented a significant turnaround from the £462m loss the year before.
Shareholders were also buoyed by the news that the company will reinstate dividend payments, signalling confidence in future performance as well.
The company has proposed a final dividend of 1.3p per share, which would be the first distribution since January 2023, for a yield of 1.7%.
Valuation
Despite the impressive recent share price performance, Currys still appears attractively valued to me. The stock has a forward price-to-earnings (P/E) ratio of 9.3 as I write. That’s below the FTSE 250 average of 10.6, indicating potential undervaluation against the broader market.
Currys’ trailing P/E ratio of 24.7 compares favourably to fellow electrical retailer AO World, although the latter has a 23.6 P/E ratio there’s no dividend yield.
The FTSE 250 has an average dividend yield of 3.5%. Given it’s early days for the company’s improved performance, I don’t think it’s a stock for passive income investors to consider just yet.
While dividends do tend to be sticky, we’ve seen variable dividends with Currys just recently. The retail sector is notoriously tricky. Changing consumer trends and vulnerability to economic downturns are just a couple of potential threats to earnings.
Currys’ valuation metrics suggest it’s competitively priced, especially considering its recent return to profitability and dividend payments.
Verdict
All in all, Currys’ strong share price performance shows signs of a promising turnaround, which is underpinned by improved financial performance and renewed investor confidence. The company’s forward P/E ratio indicates potential for continued earnings growth, and the reinstatement of dividends adds to its appeal.
However, investors should be mindful of potential risks. The retail sector remains competitive, and economic headwinds could impact consumer spending. Currys is also not immune to cost pressures including higher National Insurance contributions and wage inflation.
Despite these challenges, Currys’ strategic initiatives and market position suggest it’s well-placed to navigate the current environment.
My portfolio is well-invested at the moment and I feel like I have enough growth prospects already. Currys isn’t a stock I’ll be actively pursuing but it could be one for investors to consider with some promising growth prospects in the retail sector.
