Shares in WH Smith LON:SMWH have been dropping since its last set of results. Stock has dropped over 11%, and this despite the opportunities for expansion in the US. The question is, are management over-playing the US potential for WHSmith, and is the recent decline in the share price a fundamental sell signal for investors?
The US offers a huge growth opportunity for WH Smith, driven by increasing air traffic and much-needed airport upgrades. Many airports, built in the ’60s and ’70s, have untapped potential in non-aeronautical revenue, which is much lower than the global average.
As these airports modernize, WH Smith is well-positioned to capture more market share. Coming from a low base, it is rapidly expanding through its acquisition of MRG, creating a “flywheel effect” that fuels further growth.
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Concerns around WH Smith tech division
While airport pricing is constrained by lease structures, its airport business faces less pressure from discounting compared to its tech division, which is dealing with heavy competition. The company sees growth potential in expanding tech sales in underpenetrated airport locations and exploring shop-in-shop opportunities.
“There’s strong demand for higher-quality grab-and-go options, but the current US market offering feels generic and stale,” observed Yanmei Tang, a retail analyst with Third Bridge. “WH Smith needs stronger partnerships with providers to scale this across the US.”
What’s different about the US retail landscape?
In health and beauty, US airport offerings differ from the UK, with branded stores like MAC or Kiehl’s proving more successful than full-line chemist shops, reflecting different customer preferences.
Experts say WH Smith is in a strong position to grow its margin by reaching 30% sales penetration of its own brand and note the opportunity to improve operations in US hospitals, where many small, poorly run businesses exist.
How do WH Smith shares stack up against its competitors
WH Smith is actually performing well within its sector. A revenue increase of 6.2% versus the same quarter next year looks good for a retailer of this size. Even better we see a 6.5% gain in earnings per share. The income line has increased for 14 consecutive quarters.
The EBITDA margin has also risen sharply from 13.6% to 16.6% on a quarter-on-quarter basis. This shows that the company has raise prices and/or implemented optimisation methods in its key activity sectors, leading to an increase in EBITDA margins. Our research shows us that this should support WHSmith shares going forwards.
Investors should also take note of the free cash flow per quarter, which was an increase of £5m from the previous year’s corresponding quarter and which is continuing to power dividends from WH Smith (dividend yield of 2.7%).
Source: Bridgewise
What does technical analysis tell us about WH Smith shares?
The following is medium term trend analysis using proprietary technical indicators from Trend Intelligence. Interestingly, the bottom three charts below are all positive. These three momentum indicators are all in positive territory. Take for example the bottom chart – here the red M* line is trading above the white and blue signal lines, which is an argument for positive momentum.
That said, the price overlay indicators, which we can see in the top chart, are telling a different story. The WH Smith share price is trading below all three moving averages. The averages remain organised in a partially positive configuration. The share price also trades within the Japanese Cloud indicator and the representative delay line is also within the cloud. The most recent candles are red as well.
This means the WH Smith share price is in a highly balanced situation – Trend Intelligence sees both positive (46.7%) and negative (40%) factors at play here. I would anticipate a further sell down in WH Smith shares in the short term, but investors should be looking for a good entry point in order to pick up the shares at a cheap valuation.
