These growth stocks have been smashing the FTSE 250

Paul Summers looks at two top growth stocks that are trouncing the market’s second tier.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The FTSE 250 index may be up 5.7% over the last year, but this is nothing compared to some of its constituents. Take budget airline Wizz Air (LSE: WIZZ). In the last 12 months, its stock has climbed a stonking 62%.

Can this momentum continue? Based on today’s excellent set of final results and bullish words from management, it’s certainly possible.

Flying high

In the year to the end of March, the number of passengers carried by the airline rose by just under 25% year on year to a record 29.6m. Revenue flew 24% higher at €1.95bn and net profit came in at a record €275m — 22.1% more than in 2016/17. 

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

With numbers as good as these, it’s no surprise that the people running the firm remain very optimistic” going forward. Indeed, CEO József Váradi predicts that the company’s low fares and expanding network will lead to an estimated 20% rise in passenger numbers over the next financial year to 36m. Net profit of between €310 million and €340 million has already been pencilled in. 

While there can be little doubt that the £2.3bn cap airline is a class act, the question remains as to whether the ‘easy money’ has already made by investors. With the shares up another 4% in early trading, it would seem that many believe even better times lie ahead.

I’m tempted to agree. While a forward price-to-earnings (P/E) ratio of 14 for the next financial year is on par with industry peers, it’s worth pointing out that the company’s returns on capital and operating margins are notably higher. Wizz’s finances are also in excellent shape with €980m of free cash on its books at the end of the reporting period. Aside from this, A PEG ratio of just 0.84 suggests that a lot of growth still isn’t factored into the price of the stock.

While income investors may be better suited to British Airways owner International Consolidated Airlines for their dividend fix, I certainly wouldn’t discourage growth enthusiasts from considering Wizz for their suitably diversified portfolios

All priced in?

FTSE 250 peer SSP Group (LSE: SSPG) is another stock that’s been performing far better than the index over the last year, rising 39% in value. 

Earlier this month, the food and beverage outlet operator — which occupies sites at many of the airports that Wizz flies to and from — announced a 32.6% rise in underlying operating profit (at constant currency). Revenue also rose almost 12% to £1.18bn over the six months to the end of March, with 2% of this coming from two recent acquisitions (Stockheim in Germany and TFS in India). While the forecast 1.5% dividend yield befits its growth credentials, it’s nevertheless worth noting management’s decision to hike the interim payout by a full 50% to 4.8p per share.

With new contracts in the pipeline, CEO Kate Swann reflected that H2 had begun in line with expectations, even if “a degree of uncertainty always exists around passenger numbers in the short term”. 

When I last looked at SSP in November, its shares were changing hands for 656p. Today, they’re at roughly the same value, suggesting that a lot of positive news already appears to be have been factored in by the market. A P/E ratio of 28 for the current year continues to look pretty high so I’m content to wait for a general market sell-off before I consider building a position. 

Is this a top choice for growing wealth now?

Before deciding, we think this pick is another must-see.

Discover ‘One Top Growth Stock from The Motley Fool’ absolutely FREE.

Though past performance does not guarantee future results, over the past 5 years, it’s seen consistent double-digit revenue growth. ‘Return on capital’ - a key measure of business quality - is a colossal 57%. That’s almost 6 times higher than the UK average!

Best of all, it has a cult-like following. Customers who’re raving fans, potentially spending more money, more often - whatever the economy.

In our experience, discoveries like this are extremely rare.

So please, don’t leave without seeing, ‘One Top Growth Stock from The Motley Fool’, which includes both the Risks and opportunities.

Claim your FREE copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of SSP Group. 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.

More on Investing Articles

Investing Articles

These 5 stocks could earn £1,600 of annual passive income in a £20,000 ISA

Harvey Jones shows how to generate a high and rising passive income by buying a balanced mix of high-yielding FTSE…

Read more »

Young woman holding up three fingers
Investing Articles

3 things I like about Greggs shares

Greggs shares have tumbled by more than a third over the past year. But this writer has no plan to…

Read more »

artificial intelligence investing algorithms
Investing Articles

Nvidia stock: beware the bear market rally

Andrew Mackie argues that investors should tread carefully before investing in Nvidia stock, as the worst of the sell-off could…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Up 73% in one year, is this the best value stock in the FTSE 100?

A brilliant run of form suggests this FTSE 100 giant should no longer make the cut as a value stock.…

Read more »

Investing Articles

The best could yet be to come for UK shares! I’m buying these ones

Amid ongoing stock market turbulence, this writer's been adding selected UK shares to his portfolio. Here's why and what he…

Read more »

Top Stocks

4 UK stocks trading well below book value to consider buying

Sometimes, it pays to be contrarian: who says the UK market has priced a stock precisely right, anyway?

Read more »

Investing Articles

The S&P 500’s 12% off its highs. Is now a good time to buy US shares for an ISA?

Right now, a lot of British investors are wondering whether it’s a good time to buy US shares. Here, Edward…

Read more »

Investing Articles

2 stocks that could help investors earn £2,516 of passive income per year from a £20k ISA

Our writer selects two high-yield UK dividend shares for investors to consider that could turbocharge a passive income portfolio.

Read more »