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Many stocks within the FTSE 250 Index have seen their fair share of volatility over the last couple of years.
While the UK mid-cap index has gained 1.9% to sit at 21,025 points as I write on 29 May, heavy selling means there are some unloved stocks that could be worth a second look.
I think UK landscaping and construction products manufacturer Marshalls (LSE: MSLH) is one that value-focused investors might want to keep on their radar.
Tough industry environment
Marshalls has not been immune to the pressures facing the UK building and housing sector. In 2023, the company issued profit warnings in response to a sharp slowdown in construction activity.
Rising interest rates, weak consumer confidence, and reduced housing starts all hit demand. That in turn led to job cuts and a restructuring of the company’s operations.
As a result, the company’s share price fell significantly, declining more than 60% from the start of 2021 to the end of 2023.
The company isn’t out of the woods just yet. Full-year revenues for the year ending December 2024 fell 8% to £619.2m as the board also reduced the final dividend by 5.3% from the year prior to 5.4p.
At the time of writing, the shares trade at around 286p, giving the company a price-to-earnings (P/E) ratio of around 23 times. That feels quite rich to me.
The stock has a dividend yield of 2.8% — tidy, but nothing to write home about, especially given the outlook.
Neither of these metrics are screaming that now is the time to buy. However, for medium-to-long-term investors, I think there is some potential upside that makes the company one to watch.
Promising signs
Despite the challenges, I think Marshalls remains a fundamentally sound business with a strong position in its sector.
The company supplies products for both private and public sector projects, including paving, drainage, and garden landscaping. This diversification of its product and service lines helps to build some resiliency and de-risk the business.
The UK government is pushing hard to build 1.5m new homes during its term. Whether that target is achieved or not, I think it should drive investment and opportunity in the sector, which may benefit Marshalls.
Inflation in the UK continues to ease and we’ve seen the Bank of England start to cut interest rates. That is good news for housing activity and infrastructure sectors, which tend to be quite sensitive to interest rates.
In its full-year results released in March, the company reported a strengthening order book and early signs of a pickup in commercial project activity. While it is too early to call a full recovery, I think these provide some signs of hope for its long-term trajectory.
Not without risk
Of course, this remains a cyclical stock exposed to ongoing macroeconomic risks. A prolonged downturn in the housing market, delays to public spending, or continued weakness in consumer demand could all affect Marshalls’ recovery prospects.
In my opinion, the current price is too high given these challenges. However, further share price drops could put the stock in a zone where it’s worth considering for the long term, aided by a leaner cost base and lower interest rate environment.
