Down 41%, this cheap stock is undervalued by 69% and offers a dividend yield of 7.3%!
B&M for European Value Retail (LSE:BME) has seen a decline in market value in recent years, relegating the business to cheap stock territory. But with new leadership at the helm, some institutional investors have begun to question whether the pessimism among investors is really justified.
In fact, the analyst team at Berenberg Bank recently reiterated its buy recommendation with a price target of 300p. And while Citi’s experts remain on the fence about a hold proposal, they raised their price target for the shares earlier this month.
Compared to where the stock is trading today, that means investors could be looking at a capital gain of nearly 70% over the next 12 months, which equates to a nice-looking 7.3% yield.
So does this cheap stock make sense?
Image source: Getty Images
A little context
As inflation drives up the cost of living, discounters have been growing and taking market share away from supermarkets such as Asda and Places to stay in Sainsbury. However, despite being a leading discount retailer, poor strategy meant that B&M almost missed out on this fate.
Poor forecasting of consumer demand for certain product lines has resulted in slower product inventory balance. This mistake eventually led to slower sales and margin erosion as B&M was effectively forced to cut these items, leading to a painful series of profit warnings.
Fast-forward to October last year, and an accounting scandal revealed £7m of unrecognized excess asset costs, leading to the resignation of its CFO. And when you combine this series of disappointments with lost market share and high labor costs, it’s no wonder investors quickly started jumping ship.
A hidden opportunity?
We are now in 2026, and B&M has a new leadership team at the helm, aiming to get the business back on track, starting with simplifying the product line and reinventing the value proposition of B&M among consumers.
The latter is a very difficult endeavor, especially in a highly competitive retail market. However, there are signs that this strategy is working. In December, like-for-like sales returned to positive territory, albeit at a lower rate.
It is possible that this was just one year supported by the usual Christmas spending activity. But it is worth pointing out that this sales momentum continued in January. And if this like-for-like sales trend continues, it could confirm December as a key turning point for the business as it executes a multi-year turnaround strategy.
This optimistic outlook is why B&M shares are actually up 9% year to date. And with shares still trading at just 7.6 times earnings, Berenberg’s bullish forecast could come true if the company’s next set of earnings shows continued gains.
An important point
With B&M still priced as a cheap stock, it’s clear that not all investors are convinced, myself included. While the firm’s recent results are undoubtedly encouraging, a recent spate of broken investor promises and earnings misses means I’m keeping the business on a low note.
However, if management continues to deliver promising recovery progress, I may have to reconsider. That’s why I believe investors should consider keeping a close eye on this stock throughout the year 2026.
