Today I'll be taking a closer look at three home improvement retailers whose attractive valuations suggest significant upside potential over the longer term. So could now be the perfect time to give your portfolio a makeover and invest in these cut-price retailers?
Furniture retailer DFS (LSE: DFS) says it expects to deliver record performance for its full financial year and pay a higher dividend, after achieving good growth in revenue in the year to the end of July. Management expects full-year results to be at the upper end of market expectations after achieving 7% revenue growth year-on-year. The company cited store expansion, development of the multi-channel offering, retail space conversion and enhancement of its product ranges as reasons for revenue growth.
The Doncaster-based furniture retailer is expected to announce a progressive final dividend in line with guidance for an overall full-year payout of 45% to 50% of profit after tax. DFS currently looks good value trading at 12 times forward earnings, supported by a solid dividend yield of 4%. I think now could be a good time to buy ahead of annual results on 6 October.
New store format
The UK's largest flooring retailer Carpetright(LSE: CPR) has seen its share price slide by around 60% over the past 12 months as the closure of 25 underperforming UK stores led to a decline in revenues from £469.8m to £456.8m in its last financial year. But perhaps more importantly, like-for-like sales were up by 2.8% in the UK and by 4.8% in the rest of Europe, with pre-tax profits rising to £12.8m from £6.6m a year earlier.
The Essex-based retailer plans to refurbish 100 UK stores within the next year at a cost of £10m, following the successful trial of its new store format. Strong growth should continue with an 8% rise in earnings expected this year, followed by an even better 13% for FY2018, leaving the shares on a very modest P/E rating of just 10 times earnings for fiscal 2018.
The UK's biggest tiles specialist Topps Tiles(LSE: TPT) enjoyed good growth in like-for-like sales in the third quarter of its financial year as it continued to make progress with its strategy to "out-specialise the specialists.
During the 13 weeks to 2 July the company launched a new personalised digital service that enables customers to create a bespoke brochure with content specific to the rooms and designs they're interestedTom's The Leicester-based firm revealed that around 1,000 of these personalised brochures are being created every week.
The small-cap retailer opened six new stores during the quarter, taking its total to 348, including 15 boutiques. The fiscal year ends at the end of this month with full-year earnings expected to show a rise of 12%, leaving the shares trading at a very reasonable 12 times forward earnings.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.