2 fast-growing FTSE 250 stocks for a prosperous 2017

It could pay to take a closer look at these surprise winners, says Roland Head.

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The FTSE 250 has risen by almost 70% over the last five years. That’s more than double the 31% gain delivered by the big-cap FTSE 100 index. This suggests that the index of medium-sized companies is a good place to hunt for potential big winners.

These stocks aren’t always obvious choices. Of the two companies I’m going to look at in this article, one is outperforming in a sector where growth is generally slowing down. The other looked like it was going to be squeezed out of its main market.

Both of these companies have been excellent investments so far. Are they still worth adding to your portfolio?

Wizz bang performance

Shares of eastern Europe-focused budget airline Wizz Air Holdings (LSE: WIZZ) have risen by almost 40% since its flotation in March 2015. Over the same period, Wizz Air’s larger peer easyJet has lost 43% of its value.

Wizz Air is continuing to add new flights to its schedule, and is attracting increasing numbers of passengers. Seat capacity has risen by 17.2% over the last 12 months, while passenger numbers have risen by 18.6%. As a result, Wizz Air’s load factor — the percentage of available seats that are booked — has risen from 87.9% to 89% over the period.

This is good news, especially as Wizz Air’s growth remains highly profitable. The group’s recent interim results showed that Wizz Air’s operating profit margin was 27.3% during the first half, 1.9% higher than during the same period last year. In contrast, easyJet’s operating margin was just 10.7% last year.

Falling fuel prices have helped Wizz Air reduce ticket prices without sacrificing profits. One risk is that if fuel prices start to rise in 2017, the company could find it hard to increase ticket prices again without affecting sales.

Wizz Air currently trades on a 2016/17 forecast P/E of 10.5. If the group can maintain its current level of profitability, the shares could offer decent value.

A pharma mystery

When Reckitt Benckiser spun off pharmaceutical business Indivior (LSE: INDV) in 2014, the new business was generating big profits, but had an uncertain future. Indivior’s main product, a treatment for opioid addiction, was expected to face a surge of generic competition. This would drive down prices and crush the firm’s profits. Indivior didn’t have any other commercial products.

Things haven’t turned out quite as expected. Indivior has delivered significant sales growth, even as profit margins have fallen. More recently, the group has had some legal success in preventing competitors bringing rival products to market.

The situation is still uncertain but Indivior’s management has made good use of cash flow to reduce debt and focus on developing new products.

The risk is that Indivior’s run of luck will eventually end, without the group having found a replacement source of income. But Indivior has consistently outperformed expectations. Consensus earnings forecasts for the stock have doubled over the last year. The group may well be able to use litigation and perhaps merger and acquisition activity to protect shareholder value and build a secure future.

Although forward visibility is very limited, Indivior’s forecast P/E of 11.5 doesn’t seem expensive to me. Further gains could well be possible.

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.

Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Reckitt Benckiser. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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