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I’ve been keeping a close eye on an underperforming UK stock for some months. Thankfully, I didn’t buy it.
The stock in question is FTSE 250-listed landscaping and building products supplier Marshalls (LSE: MSHL). It’s had a rotten week, tumbling 22% since issuing a profit warning last Friday (25 July). The Marshalls share price is now down 42% over one year and 66% over five.
In March, I said Marshalls looked cheap, but wasn’t ready for recovery just yet. That view has aged well after Marshalls slashed earnings guidance for the rest of 2025, and admitted there’s “no immediate catalyst” for a market rebound.
Can Marshalls bounce back?
In recent years, I’ve made a habit of buying companies after profit warnings, assuming most of the bad news was priced in. But too often, more trouble emerged. It’s a painful lesson. These days, I wait for the dust to settle.
Marshalls did post a 3.9% rise in first-half revenue to £319m, thanks largely to better volumes. But that masked deeper problems. Its core landscaping unit saw sales fall 1% as price pressure and a difficult product mix squeezed margins. Marshalls is battling “structural overcapacity in the UK supply chain”, leaving it little room to protect pricing.
Last Friday, the board downgraded full-year adjusted pre-tax profit expectations to between £42m and £46m. That’s a big cut from the £52m to £53.7m range it offered earlier this year.
FTSE 250 recovery hope
Despite the gloomy backdrop, there are still reasons to keep this cyclical stock on the radar. Marshalls’ price-to-earnings ratio now sits around 12.66, and the trailing yield has crept up to 3.85%. The shares are trading at levels last seen in 2000. Others may see that as a warning, of course.
Encouragingly, building and roofing products are still showing solid growth. Net debt remains under control. The balance sheet isn’t bulletproof, more than 80% of Marshalls’ net assets are intangible, but interest cover is still a reassuring four times, even after factoring in recent woes.
Tempting share, but risky
Analysts tracking Marshalls have a median 12-month price target of 320p. If that proves right, the shares could jump more than 50% from today’s 208p. But those targets were probably set before last week’s slump, so I’ll take them with a pinch of salt.
Longer term, I can see a path to recovery. This is the kind of cyclical business that could spring back to life once interest rates start falling, reawakening the housing market and home improvement sector. Timing is everything here.
There’s a strong argument in favour of buying a recovery stock before the good news is in. The initial bounce is often the biggest. I think investors might consider buying Marshalls once there’s firmer evidence of a turnaround. For now, I’ll keep watching.
