With the FTSE 250 having risen by 7.2% per annum in the last five years, it’s unsurprising that some of its constituents now have high valuations. After all, investor sentiment is presently relatively bullish, with a number of shares pricing in improving financial outlooks.
While this can mean that the margins of safety on offer are more limited than they once were, it doesn’t necessarily suggest that now’s the time to sell. With many stocks offering impressive earnings growth outlooks, buying opportunities may still be on offer. Here are two such opportunities that could be worth a closer look right now.
Impressive performance
Reporting on Wednesday was operator of food and beverage outlets in travel locations worldwide, SSP (LSE: SSPG). Its performance in the first half of the financial year was impressive, with underlying operating profit rising 32.6% at constant currency.
This was boosted by revenue growth of 11.9%, with like-for-like (LFL) sales increasing 2.8%. This was driven by air passenger travel, as well as retail initiatives. The company also benefitted from significant new contract openings and further operational improvements. It has continued to grow its international presence, with its new business in India performing well alongside its growing operations in North America and Asia.
With SSP having a price-to-earnings (P/E) ratio of 32, it may seem to be fully valued at the present time following share price growth of 173% in the last five years. However, with its bottom line expected to rise by 14% this year and by a further 10% next year, it seems to offer a relatively strong financial outlook. Given the bullish outlook for the world economy at present, its shares could continue to move higher over the medium term.
Improving performance
Also offering capital growth potential despite its high rating is Sports Direct (LSE: SPD). The company has experienced a challenging period, with its bottom line falling in each of the last two years after a period of high growth. However in the current year, it’s expected to return to positive growth, with its bottom line forecast to rise by 21%.
With the outlook for UK consumers improving, the company could enjoy a stronger period of operational and financial performance. Inflation has now fallen below wage growth for the first time in over a year and this could help to strengthen confidence among consumers.
With Sports Direct having a P/E ratio of around 21, it may seem to be overvalued at a time when many of its retail sector peers have significantly lower ratings. However, with the company having a strong position and an improving outlook, it would be unsurprising for its share price to rise after its 37% gain of the last year. As such, now could be the right time to buy it for the long term.
