Shares in FTSE 100 discount retailer B&M European Value (LSE:BME) have fallen 13% since the start of the year. At today’s prices, the stock looks like a bargain.

The company is growing well, has a strong competitive position, and trades at a compelling valuation. That’s a combination that could produce strong returns for investors.

Growth

Retailers can grow in two ways. One is by opening more stores and the other is by finding ways to generate higher profits from their existing outlets. 

At its most recent trading update, B&M announced revenue growth of 10% compared to the previous year. And around two-thirds of that came from opening new stores. 

Part of this has been the business taking advantage of a short-term opportunity. Wilko going into bankruptcy gave B&M a chance to acquire some of its units at bargain prices. 

The company is expecting to roughly double its store count over the long term. So there should be plenty of scope for future growth from an expanded number of outlets.

Value

B&M shares trade at a price-to-earnings (P/E) ratio of around 13. That’s significant for a couple of reasons.

First, it’s pretty much in line with the average for the FTSE 100. So in terms of the index, I see this as a better-than-average business trading at an average price.

B&M European Value P/E ratio 2015-2024

Created at TradingView

Second, it’s low by the company’s historical standards. The stock has generally traded at a higher multiple over the last decade, making it a relatively good time to consider buying. 

On top of this, the company’s growth means today’s prices represent a forward P/E ratio of 12. All of this means I think the valuation looks unusually attractive at the moment. 

Quality

The big risk with retail is competition. The likes of Lidl and Aldi are fierce competitors and there’s virtually nothing companies can do to stop customers hunting the lowest prices.

It’s worth noting, though, that this has been the case for some time. And B&M has managed to maintain strong profitability levels.

Operating Margins B&M vs Tesco

Created at TradingView

Over the last 10 years, the company has consistently maintained operating margins above 10%. That’s more than double what Tesco has achieved during the same period.

That’s an indication the company has a strong competitive position. And this is the kind of thing that makes a stock a good long-term investment. 

Buying opportunities

B&M looks like a resilient business with good prospects for future growth. And it’s trading at an unusually good price at the moment.

That could be a winning combination for investors. The stock doesn’t get the attention it deserves, but that’s often where the best opportunities come from.