Should you invest in Dunelm? It has performed well and appears to be reasonably priced

Dunelm, a retailer of home furnishings, has shown itself to be resilient and reasonably priced

Big retailers are having a hard time right now. They face challenges from the cost of living, the state of the world economy, and growing labor expenses, particularly in light of the recent rise in employers' national insurance contributions. Nevertheless, a few savvy retailers have been able to overcome the chaos.

Dunelm Group (LSE: DNLM) is one of these; three years ago, we were able to tip it in issue 1114, and it sold in issue 1152 for a profit of 489. For the next two years, the stock mostly trod water, proving that this was a smart move. However, it has recently begun to gain traction, so now is a good time to think about taking another gamble.

Dunelm offers bedding, garden tools, and furniture for the home. It has proven adept in recent years at identifying goods that consumers are interested in purchasing and setting prices that are reasonable without drastically reducing them.

Even though it has continuously increased the number of stores it runs, it has balanced this growth with website investment, which has allowed it to profit from customers' slow shift to online shopping patterns. More recently, it has worked hard to increase efficiency and increase the number of self-service checkouts in an attempt to counteract the increase in national insurance payments.

The competition for Dunelm will be difficult to match.

As a result, Dunelm has grown its market share to 7.7 percent while others have faltered. Over the last five years, sales have grown by more than 50%, and the most recent data indicates that this trend is continuing. Although Pottery Barn, a US retailer, is a possible threat to the UK market, it will take some time for the newcomer to establish itself, and Dunelm's effectiveness and well-known brand should help it overcome the obstacle. In addition to offering opportunities for growth, Dunelms' acquisition of Irish retailer Home Focus nine months ago also lessens its reliance on the UK market.

With a consistently high return on capital employed (above 40 percent), Dunelm has strong operating margins. Additionally, it has comparatively low debt levels, which should help it weather any abrupt drops in consumer confidence. Despite trading at a low 14:6 times 2026 earnings, the stock still has a very appealing appearance. Better yet, it offers a dividend yield of 5 %, which is significantly higher than the FTSE 350 average of 3 %.

There is a lot of momentum behind Dunelms shares as well. In the last three, six, and twelve months, they have outperformed the market and are trading above their 50-day and 200-day moving averages. Several brokers have recently upgraded their price forecasts. For this reason, I advise you to buy at the current price of 1,169p at a ratio of 2 to 1p. I would set a stop loss of 769p in that scenario, giving you an 800p total downside.