Can I afford to miss a Wickes shares bargain?

After spinning off from Travis Perkins in February 2022, Wicks (LSE: WIX) shares fell in price from 264p to less than 115p in October 2022. Even after the recovery in the share price to 151p, the price-to-earnings ratio (P/E) is only 8.9, which is visible. inviting comparisons with the wider market and the company’s industry peers.

Given that Wickes’ sales have grown by an average of 8.6% over the past five years, profits are forecast to increase and 2023 yields a 7.2% dividend, the stock could be an excellent bargain. So, I had to look closely.

A fixer-upper

Wickes is a home improvement retailer that operates 230 stores and an online platform. Our core customers are local tradesmen and DIYers. But it also has a flourishing do-it-for-me (DIFM) business that organizes and pays people to install what customers choose in stores and online.

I should start by looking at how the company is doing now. On 31 Jan 2023, Wickes published its trading update for the last quarter of 2022. Coming in at five long pages, it’s quite brief, but the following are the key points:

• Like-for-like core sales were up 11.5% year-on-year (YoY) for the quarter and 3.5% for the year;
• DIFM sales were up 34.5% YoY for the quarter and 26% for the full year;
• The DIFM order book was lower at the end of 2022 than in 2021 but higher than in 2019;
• 2022 adjusted earnings before tax are expected to be in line with market expectations;
• In 2023 energy costs are expected to be £10m higher, and wage costs £3.5m higher than in 2022.

Wickes’ share price fell slightly on the day of the trading report, but is still in the range from the start of 2023. Overall, management is happy with the recent trading performance but seems to be warning about 2023. I just don’t see anything to get too excited about here, or much to get gloomy about.

Did Wickes show very well miss?

Compared to the average P/E ratio for specialty retailers of 10.0, Wickes looks cheap. Kingfisher it is a close competitor that trades at a P/E ratio of 11.2.

Currently, I have Kingfisher in my Stocks and Shares ISA. I don’t want to have these two types of stocks, so I have to replace one with the other? Well, according to Statista the UK DIY & Hardware Store market is estimated to be worth $34bn by 2023 – yes, those useless dollars. Now after several conversions, Wickes has about 5% of the market based on analyst estimates. Kingfisher is about 10 times bigger in terms of profit, so it should be about half the market.

And I don’t see much of a competitive advantage in this market. So the most efficient and safe operator, with the biggest market share is what I would choose. Kingfisher is bigger and has higher operating profit and return on capital employed. It is less leveraged, and its liquidity position appears to be more secure. Although historically higher, Wickes’ sales growth is forecast to be comparable to Kingfisher’s in the next few years.

Wickes shares look cheap, but I’ll stick with what I got.