At 6.2x forward earnings, this FTSE income stock could make investors very happy

Card Factory (LSE:CARD) is a potentially overlooked FTSE stock. It’s the UK’s leading specialist retailer of greeting cards and celebration essentials — not particularly sexy stuff.

Interestingly, the stock has performed pretty well since the pandemic. While it’s down around 66% over 10 years, the shares are up 223% over five years. It’s a mixed picture, but the stock we see today could interest some investors.

Let’s take a closer look.

Positive momentum

Card Factory’s results for the year ended January 2025 gave further evidence of the company’s operational momentum. Revenues rose by 6.2% to £542.5m, driven by a 5.8% increase in total store sales. Like-for-like (LFL) sales grew by 3.4%, outpacing much of the wider retail sector.

Meanwhile, adjusted profit before tax climbed 6.3% to £66m, reflecting the benefits of a growing store estate and ongoing expansion into the gifts and celebration essentials categories.

Reflecting on the year, the company’s management highlighted the successful execution of its “Opening Our New Future” strategy. This includes targeted acquisitions in Ireland and the US, as well as new partnerships to broaden international reach.

CEO Darcy Willson-Rymer noted that momentum has continued into financial year 2026 and reaffirmed confidence in delivering mid-to-high single-digit profit growth. This will be supported by ongoing productivity and efficiency initiatives.

Valuation is compelling

In an increasingly hot market, it’s nice to find pockets of value. And Card Factory’s valuation certainly appears attractive.

The shares currently trade on a forward price-to-earnings (P/E) ratio of just 6.2 for 2026, falling further to 5.9 for 2027, based on consensus forecasts. This is well below the long-term average for the sector, suggesting the market has yet to fully price in the company’s recovery and growth prospects.

Dividend prospects are also brightening. The forward dividend yield is forecast to rise from 5.1% this year to nearly 6.6% by 2027. The payout ratio remains comfortably below 40% throughout.

Net debt, excluding leases, rose to £58.9m in the financial year 2025, but leverage remains manageable at 0.7 times earnings before interest, tax, depreciation, and amortisation. Cash generation remains strong, with operating cash flow of £105.6m. This should support dividends and debt repayments.

It’s not all blue skies

Despite these positives, investors should be mindful of several risks. Card Factory’s business remains heavily store-based, with only modest growth in its online platform last year. As consumer behaviour, in general, continues to shift towards digital channels, the company could face challenges if it fails to accelerate its e-commerce strategy.

Additionally, rising national insurance and minimum wage costs could further pressure margins, as wage expenses already represent a significant portion of overall costs.

However, it’s a stock I’m going to consider investing in. I certainly haven’t made my mind up yet, but its low valuation, solid profit growth, and improving dividend yield make it an intriguing prospect for value and income investing. With manageable debt and a clear growth strategy, the shares could deliver happy returns.

The post At 6.2x forward earnings, this FTSE income stock could make investors very happy appeared first on The Motley Fool UK.

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James Fox has no position in any of the shares mentioned. The Motley Fool UK 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.