When I talk about WH Smith (LSE:SMWH) to my investing friends, some laugh. The stock has been trending lower for several years now, and recently hit it’s lowest level in over a decade.
Down 36% in the past six months, the trend’s continuing, but I’m starting to think it could be a good value share purchase. But is the fall going to stop soon?
The recent fall
It’s been a miserable six months for WH Smith’s shareholders. Yet I think the scale of the decline makes the stock increasingly interesting as a potential value opportunity.
The problem isn’t revenue disappearing overnight as first-half group sales actually increased 5% to £748m. Instead, profitability has deteriorated dramatically. Headline trading profit dropped from £47m to £32m, while headline pre-tax profit slumped from £21m to just £3m. Airport refurbishment disruption, inflation and weaker margins all contributed.
Things then got worse. In June, management cut full-year adjusted pre-tax profit guidance for the second time in two months, this time to £75m-£90m from £90m-£105m. North American like-for-like sales turned negative, including a 4% decline during the latest seven-week period, as weaker passenger numbers and spending hurt the business. Middle East disruption hasn’t helped a company increasingly dependent on travel locations either.
Putting the bad news in the past
The company has suspended its dividend and subsequently raised £106m through a placing to strengthen its balance sheet. That’s one reason why I’m actually quite interested. The boost to cash flow should reduce expected year-end net debt to around £320m.
Further, the management team is closing poorly-performing North American stores and restructuring the estate. Importantly, there are pockets of strength underneath the mess. UK hospitals and rail locations have performed considerably better, while the core North American Travel Essentials operation had been delivering encouraging growth.
At the current share price, expectations are extremely low. Of course, it could fall further. The main risk I see is another profit warning or evidence of cotninued North American weakness. From the current price of 386p, this could send the value share towards 350p, perhaps even 300p in a severe scenario over the coming year.
Risk and reward
But I think the risk relative to reward is becoming tempting. The stock could double from here and still not have reached the levels seen from summer 2025. It doesn’t need spectacular growth for the shares to recover. With expectations so low, it only really needs stable passenger spending and no more nasty surprises.
If management delivers those, I think it’s very plausible to see value buyers step in over the coming months. This could act to materially boost the share price. On that basis, I’m adding the stock to my watchlist, and would consider buying it when I have more free cash. Investors could consider doing the same.
Should you invest £5,000 in WH Smith right now?
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Jon Smith does not hold any positions in the companies mentioned
This story originally appeared on Motley Fool
