Image source: Getty Images
Growth stocks can often be volatile. And Marshalls‘ (LSE:MSLH) shareholders were recently reminded of this as the share price of the construction materials business collapsed by over 20% in a single day last month. This stumble is a continuation of the downward trend these shares have been on since 2021, bringing the total loss to a horrifying 75%.
While that’s frustrating, it’s dragged the price-to-earnings (P/E) ratio down to 16.8. That’s around 30% lower than its historical average of 23.4, and a near-50% discount to its key competitors, Ibstock (38.5) and Forterra (27.6).
In other words, Marshalls looks pretty cheap right now. So is this a screaming buying opportunity? Or is this a warning sign to stay away? Let’s take a closer look.
What happened?
Like most sudden double-digit dips, Marshalls’ recent 20% collapse came on the back of a trading update. The group delivered a slight revenue bump over the first six months of 2025, with sales landing at £319m versus £307m.
Zooming into its individual segments:
- Landscaping Products enjoyed a notable rebound compared to the weak second half of 2024
- Building Products received a welcome bump from steadily rising residential housing build rates
- Roofing Products maintained its momentum from last year, expanding by double digits
On the surface, this all sounds fairly positive. But digging deeper reveals a problem. Demand for Landscaping Products declined significantly towards the end of May. And when combined with industry overcapacity, Marshalls was forced to cut prices to remain competitive, hitting profit margins.
To make matters worse, management doesn’t foresee any near-term respite, resulting in a full-year profit warning. Underlying pre-tax profits are now expected to land between £42m and £46m versus the £52.2m delivered in 2024. And when combining a profit warning with a bleak outlook, investors unsurprisingly jumped ship, triggering a sharp share price crash.
But is this an overreaction?
Room for optimism
While its landscaping segment’s struggling, investors seem to be overlooking the robust gains delivered by its building and roofing businesses in spite of industry weakness. And since these segments contribute the most towards Marshalls’ bottom line, continued growth could eventually offset the expected prolonged weakness within its landscaping operations.
At the same time, the company has been busy accelerating its cost-cutting initiatives targeting a £9m annualised savings by the end of this year, as well as notable margin expansion for landscaping by 2026. Considering the latter’s experiencing competitive pricing pressures, future boosts to profitability could eventually restore earnings even when selling products at lower prices.
The bottom line
Marshalls’ profit warning has cast a shadow of uncertainty over what’s coming in the near term. And seeing the shares dropping to reflect this makes sense. But a 20% crash might be a bit overkill, likely driven by the generally weak investor sentiment surrounding the building materials sector.
2025 sounds like it’s going to be a rough year for this enterprise. But as with most cyclical stocks, the key is to buy at the bottom of the cycle, not the top. With that in mind, long-term investors may want to take a closer look at this growth stock for its recovery potential in 2026 and beyond.
