Is the falling Dunelm share price an opportunity or one to avoid?

A couple celebrating moving in to a new home

Dunelm (LSE:DNLM) shares are one of a number of stocks on a downward trajectory in recent months. This is due to macroeconomic headwinds as well as geopolitical issues. Could the falling Dunelm share price be a steal at current levels? Let’s take a closer look.

Home furnishings retailer

As a quick reminder, Dunelm is a home furnishings business with approximately 80 stores throughout the country. The majority of its locations are large out-of-town sites. It predominantly sells textile products such as curtains, bed linens, cushions, quilts and rugs, as well as other furniture too.

So what’s happening with Dunelm shares currently? Well, as I write, they’re trading for 869p. At this time last year, the stock was trading for 1,345p, which is a 35% drop over a 12-month period.

To buy or not to buy?

So what are the pros and cons of me buying Dunelm shares?

FOR: I do understand that past performance is not a guarantee of the future; however, Dunelm’s track record is positive. Furthermore, it recently released interim full-year results which made for great reading, in my opinion. Total sales increased by 16% compared to 2021 figures, and were significantly above expectations and pre-pandemic trading. Dunelm pointed towards a significant increase in market share too. I will keep a keen eye open for full detailed results due in the coming months.

AGAINST: Many shares have been falling due to macroeconomic pressures. These include soaring inflation, rising costs, and the global supply chain crisis. Rising costs are affecting profit margins, which is affecting performance and returns. In addition to this, supply chain constraints have had an impact on sales too. There is no end in sight to these issues, so I must bear these in mind.

FOR: With the Dunelm share price falling, the shares currently look good value for money on a price-to-earnings ratio of 10. In addition to this, the shares would boost my passive income stream through dividends. The current dividend yield is just over 4%. This is higher than the FTSE 250 average of just under 2%. I am aware that dividends can be cancelled at any time, however.

AGAINST: Competition in the home furnishings retail market has only grown in recent years. This has been exacerbated by online disruptors making the most of online shopping trends and the e-commerce boom. Dunelm still relies heavily on retail outlets, which cost money in rent and maintenance. It could see market share affected by leaner, more agile competitors and their online-only model.

My verdict

Overall, I believe the Dunelm share price is attractive and the shares could be a shrewd addition to my holdings. For this reason, I would buy some at current levels.

Dunelm shares look good value for money, and pay a dividend. This dividend should remain stable if recent performance is anything to go by. Furthermore, it continues to grow and is always looking to open new stores. It has recently committed to an overhaul of its online presence to boost customer experience and increase sales.

The post Is the falling Dunelm share price an opportunity or one to avoid? appeared first on The Motley Fool UK.

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Jabran Khan has no position in any of the shares mentioned. 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.