One of the FTSE 250 shares I hold has had a rough 2024. It cut its dividend. The share price has fallen 18% so far this year – and 45% over the past five years.
There could be more bad news to come, I reckon, meaning the share may fall further in the coming year.
On the other hand I continue to hold it partly because I think its price has fallen more than justified and, at the current level, it offers a potential bargain for a long-term investor like me.
Well-known retailer
The company in question is Topps Tiles (LSE: TPT).
It actually operates under a number of brands, but the Topps brand itself is notably well-known after decades in the business. Between its large estate of shops and sizeable digital footprint, the company has established a strong position in the tiles market. In fact, it is responsible for one of every five tiles sold across the nation.
Still, Topps has had an undeniably tough year. Demand for tiles has been shrinking and, though Topps says it has gained market share, a shrinking market means its sales have also been falling.
On top of that, it bought assets from a failed rival in a deal now being investigated by competition authorities and has been criticised by Topps’ largest shareholder.
Why 2025 could be a turnaround year
Personally though, I think that deal was potentially one of the better moves the FTSE 250 firm made this year. It has potentially increased its reach in professional markets, such as architectural practices.
Long term, Topps remains focused on the strategy of growing sales. While market demand may ebb and flow with the housing market I expect that demand for tiles and floor coverings will be substantial over the long run. By building a strong position in that market, I see Topps as being in a good position for future profitability.
If it can integrate the acquisition and demonstrate that recent weak performance in its business is being addressed, I think the Topps share price could move up in 2025. The current market capitalisation of £76m looks low to me.
Lots of work to do
In practice though, things could also go from bad to worse.
The wider tile market could continue to struggle, hurting Topps in the process. Weak consumer spending could mean some householders delaying non-essential repairs. I see that as a risk to Topps’ ability even to maintain its current sales revenues, let alone the company’s target of growing its sales to an average of £1m per day.
So I see a possibility that the Topps Tile share price could tread water, or fall further, in 2025.
Yet longer term, I feel optimistic based on what I see as an unreasonably low current valuation. I am hopeful the share will bounce back, perhaps as soon as next year if sales trends improve. I plan to keep holding the share.
This post was originally published on Motley Fool
