Trading Strategies: a FTSE 100 retailer offering value for money

The FTSE 100 index has surged 19% higher over the past year. This compares favourably with the performance of other developed market indices over the same period. The S&P 500 index, for example, is up almost 20%, while Germany’s DAX index has gained almost 10% over the past 12 months.

The UK large-cap index’s recent performance means that it now trades on a price/earnings (PE) ratio of 17.7. Given that its members typically deliver annual earnings per share growth in the mid-single-digit range, some investors may question whether it offers value for money – especially given ongoing geopolitical risks such as conflict in the Middle East and a persistent global trade war.

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Such investors may also hold a downbeat view on the FTSE 100 because of an uncertain near-term economic outlook. Inflation in the UK and across major developed economies such as the US and the eurozone, for example, remains persistently above central bank targets. And with interest rate cuts having dried up of late, and been partially reversed in the case of the European Central Bank, it could be argued that the FTSE 100 lacks a clear catalyst to deliver further capital growth over the coming months.

Relative potential

While the FTSE 100’s value in absolute terms may now be in question, it continues to have relative appeal. Although it has outperformed the S&P 500 and the DAX over the past year, its 62% gain in the past decade is paltry compared to their respective capital returns of 248% and 146% over the same period.

This underperformance over an extended period has contributed to a PE ratio that compares favourably with the earnings multiples of both the S&P 500 and the DAX. Their PE ratios of 29.8 and 18.3, respectively, suggest that there is in fact scope for an upward rerating to the FTSE 100’s earnings multiple, which could prompt further outperformance for the index over the coming years.

Growth potential

Alongside this, the global economy’s long-term outlook remains upbeat. Inflation in developed economies such as the UK, US and the eurozone is expected to decline to meet central bank targets by the end of 2028. This should allow for a return to monetary policy easing that acts as a catalyst for the world economy’s growth rate.

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In the meantime, the International Monetary Fund (IMF) forecasts that the world economy’s rate of expansion will accelerate from 3% in 2026 to 3.4% in 2027. This is set to be at least partly due to a 70-basis point increase in the GDP growth rate among emerging market and developing economies, which are together expected to grow by 4.5% in 2027.

Given that FTSE 100 members generate over 80% of their revenue from outside the UK, a buoyant outlook for the world economy should filter through to improved operating conditions and, potentially, higher profits that catalyse the index’s performance.

Superior opportunities

Of course, several members of the FTSE 100 offer superior long-term capital growth potential than the index itself. In some cases, for example, they trade on substantially lower earnings multiples than their index peers while also offering a higher rate of earnings growth prospects. And when their solid balance sheets and strong competitive positions are factored in, they appear to offer better value for money than what is an already relatively appealing index on a long-term view.

Clearly, such stocks, as well as the wider index, could experience volatility in the short run as economic and geopolitical uncertainty potentially continues. But over the coming years, a range of FTSE 100 incumbents appear to offer upbeat earnings growth at a very reasonable price that could equate to attractive capital returns for investors.

For example, FTSE 100 retailer Kingfisher (LSE:KGF) appears to offer long-term investment potential. Shares in the owner of B&Q and Screwfix have risen by 17% in the past year, lagging the wider index by just a couple of percentage points. They trade on a prospective PE ratio of just 12.1, which suggests they offer scope for an upward rerating and capital growth.

Source: ShareScope, 3 August 2026. Past performance is not a guide to future performance.

Near-term threats

Clearly, the company’s financial performance could come under pressure in the short run amid above-target inflation and relatively high interest rates in its key markets of the UK and Europe. They may act as a drag on real-terms wage growth, resulting in consumers cutting back on DIY items sold by Kingfisher, which are often discretionary in nature.

Indeed, the company’s financial performance has been disappointing during the ongoing period of high inflation and elevated interest rates. In the three years to 2026, for example, its earnings per share has fallen by 20%. As well as negatively affecting its share price performance directly, this is likely to have prompted weaker investor sentiment that further compounds disappointing stock market performance.

An improving financial outlook

In future, though, the company is expected to deliver a much-improved financial performance. In the next two financial years, for instance, its bottom line is forecast to grow at an annualised rate of 9%. This is above the typical mid-single-digit rate of earnings growth among FTSE 100 members and suggests that Kingfisher offers relatively good value for money at its current price level.

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The firm’s market valuation appears to be even more appealing when its fundamentals are factored in. For example, its net interest cover was 7.2 in its latest financial year, while its net debt-to-equity ratio of 31% suggests it has the financial standing to overcome the possible continuation of a challenging period for consumers in its key markets. A sound financial position also means it can engage in a £300 million share buyback programme at a time when its shares trade at a discounted price.

In addition, Kingfisher reported market share gains in its latest quarterly trading update that indicate a strengthening of its competitive position. This may both aid it during an uncertain economic period and position it for growth as inflation and interest rates both potentially fall over the long run. When combined with its solid balance sheet and upbeat earnings growth outlook, the company’s shares appear to offer a wide margin of safety at their current level.

Total return prospects

Alongside its capital growth potential, Kingfisher’s total return prospects are set to be boosted by its relatively appealing dividend yield. It currently stands at 4.1%, which is 110 basis points higher than the FTSE 100’s income return partly because of its subdued recent share price performance vis-à-vis the wider index.

Although the company’s dividends per share have failed to rise in each of the past four financial years, and may yet stagnate further in the short run as the firm seeks to increase its dividend cover from 1.9 last year to 2.25-2.75, its growing profitability could allow the company to raise shareholder payouts, and boost its total return, in the long run.

As a result, Kingfisher appears to offer investment potential. Its upbeat financial forecasts, sound balance sheet and improving competitive position mean that it offers good value for money versus the wider FTSE 100 at a time when the index itself appears to have an upbeat long-term outlook.

Robert Stephens is a freelance contributor and not a direct employee of interactive investor.