One growth stock I’m tipping to come good in the future is Lords Group Trading (LSE: LORD).
Let me explain why I’m a fan of the stock, and why I’m considering snapping up some shares when I next can.
Building for the future
Lords is a distributor of building, plumbing, heating, and DIY products across the UK. The business serves a multitude of customers. These include private consumers enthusiastic about DIY, as well as smaller merchants and larger construction firms.
It wasn’t surprising to me see that the Lords share price has been struggling in recent months. Over a 12-month period, the shares are down 26% from 61p at this time last year, to current levels of 45p.
Pros and cons
It makes sense for me to cover the bear case first, after mentioning the struggling share price. I reckon a big part of this is due to economic volatility impacting construction projects and hurting consumer spending. As consumers are battling with rising costs of living, construction and home improvement projects have been put on the back burner.
Away from private projects, other initiatives such as house building, have seen completion numbers drop due to higher costs and tougher sales pipelines. This is something I’ll keep an eye on. It could begin to dent earnings and returns for Lords if it continues for the long term.
Moving to the other side of the coin, as a Foolish investor looking to the future, I reckon there are some great bullish traits about the business that could help bolster my portfolio.
Firstly, the mammoth housing imbalance in the UK could present Lords with great opportunities to grow earnings and returns. At present, demand is outstripping supply. This gap needs to be addressed, and Lords’ presence and know-how could serve it well when this is the case. Plus, when I factor in that the UK population is increasing, there could be some lucrative times ahead.
Next, Lords looks to be on a good financial footing, with a decent balance sheet. This is a good sign for the business to navigate the current tricky climate. This will also help returns, and a dividend yield of just over 4% is attractive. However, I do understand that dividends are never guaranteed.
Finally, although I take forecasts with a pinch of salt, analysts reckon profitability will soar in the coming years.
My verdict
When looking for growth stocks, it’s hard to look past current volatility and issues. However, as a long-term investor, I see plenty of meat on the bones when it comes to Lords Trading Group.
I see short-term issues and negativity, including a falling share price, as a dip-buying opportunity. The housing imbalance could play a crucial role in Lords’ future earnings. The new Labour government is pledging to plug this gap, so there’s further positivity for me to get behind.
This post was originally published on Motley Fool
