2021 was a good year for several FTSE 250 stocks. But one in particular that has caught my attention is Londonmetric Property (LSE:LMP). Despite climbing 16% last year, the shares are still only trading at a price-to-earnings ratio of 5.8. Considering the average for the index is around 22.5, the company looks to me like it’s dirt-cheap.
So, what does this business do? And should I be considering it for my portfolio? Let’s explore.
An FTSE 250 e-commerce stock to buy
With non-essential stores closing their doors in 2020 courtesy of the pandemic, many consumers switched to e-commerce shopping solutions for their retail therapy. As businesses didn’t want to miss out on the opportunity, most major retailers have doubled down on their investments in establishing an online shopping presence.
But with such a rapid shift, a logistical problem emerged. I’ve previously discussed this issue but in short, there’s a finite amount of well-positioned warehousing space available in the UK. And that has created quite a favourable environment for Londonmetric Property.
The firm is a real estate investment trust. And despite what the name would suggest, its properties are located across the country rather than just London. Almost 70% of its real estate portfolio consists of logistics and distribution centres. And as demand for such facilities continues to surge, the company has had no trouble finding tenants.
As it stands, occupancy rates are currently at an impressive 98.9%, generating £130.5m of annual rental income. What’s more, several recent acquisitions of additional urban logistic centres in 2021 have further expanded the group’s portfolio. Therefore, with e-commerce adoption continuing to rise even with non-essential stores open again, I wouldn’t be surprised to see the stock price of this FTSE 250 business continue to climb throughout 2022.
Taking a step back
As promising as the low cost and high return potential of an investment in Londonmetric Property may be, there are some notable risks. The most prominent of these is the rising level of competition, I feel.
The increasing demand for prime warehouse real-estate hasn’t gone unnoticed. And with many other firms looking to capitalise on the situation, expanding the group’s portfolio in the future could prove more challenging. Why? Because the probability of bidding wars with rival firms on new property acquisitions will increase. This could lead to Londonmetric either missing out on investment opportunities or simply ending up paying too much for them. Either way, it wouldn’t be good news for the shareholders of this FTSE 250 company.
The bottom line
While the threat of rising competition is concerning, I believe it’s a risk worth taking for my portfolio, especially with such a seemingly low share price coupled with a 3.2% dividend yield. Therefore, I’m considering adding this stock to my portfolio today.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended LondonMetric Property PLC. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
