Can this FTSE 250 growth and dividend stock pairing pep up your portfolio?

Here’s one FTSE 250 (INDEXFTSE: MCX) super growth stock, and one I think has attractive progressive dividends.

| 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.

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.

GB Group (LSE: GBG) shares climbed 18% Thursday morning, on the back of an update ahead of results for the six months ending 30 September.

The firm, which bills itself as a “global identity data intelligence specialist,” has seen its shares quadruple in price over five years, though the past 12 months have seen a relative flattening off, albeit a somewhat volatile one.

The company expects total revenue for the period to have risen by an impressive 64% to £93.7m, though that does include new acquisitions in the form of Vix Verify and IDology, with organic revenues said to be up 18%.

Profit rise

The firm expects to report adjusted operating profit of around £20.9m, up 138% on the same period last year, but how do we relate these figures to the share price valuation? In a year of growth through acquisition, I don’t think it’s easy.

Analysts are predicting a largely flat year for earnings per share, which would put the shares on a forward price-to-earnings ratio of approximately 34, or around twice the index average. There are dividends with a low yield of 0.6%, but they are progressive and are expected to have risen by 80% in five years this year.

A major effect of the year’s acquisitions is a lurch from net cash of £18.6m a year ago to net debt of £53.8m. But while that looks high, it would only be around 1.3 times annualised operating profit, so not too much of a worry.

GB probably does have a strong long-term future, but the combination of acquisition-led growth, debt, and a high P/E multiple means I’ll sit this one out and just watch.

Bigger dividend

Meanwhile, over at CareTech Holding (LSE: CTH), we’re seeing more modest growth expectations, but at a significantly lower valuation with shares on a P/E of 11, which would drop to around nine on 2020 forecasts. Dividend yields are higher too, at a little over 3%, and three times covered by earnings.

Thursday’s full-year trading update from the social care and education services provider told us that performance has been in line with market expectations. The year was pretty much dominated by the acquisition of Cambian, focused on the children’s services segment, which has come close to doubling the company’s occupancy capacity.

Net debt is a key figure here too, and at 30 September it stood at £293m, up from £147m a year previously, reflecting in part the cash consideration needed for the Cambian acquisition.

Debt

While the firm has a modest loan to book value of 40% (with a property portfolio valued at around £774m), its expected net debt to proforma EBITDA approaching four times gives me cause for concern. The company does, however, expect that to drop to under three times in the medium term.

How does CareTech look as an investment? I can’t help feeling that the negativity surrounding property at the moment has led to an undervaluation for the shares. If you think the property market has a strong long-term future, which I do, I think CareTech could be a profitable buy.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

3 of my top FTSE 250 stocks to consider buying before April

Buying undervalued UK shares can be a great way to generate long-term wealth. Here, Royston Wild reveals a handful on…

Read more »

Ice cube tray filled with ice cubes and three loose ice cubes against dark wood.
Investing Articles

Just released: our 3 top income-focused stocks to buy before April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

Is this the best chance to buy cheap FTSE 100 shares in a generation?

I want to buy shares when they're cheap, and sell... never, just keep taking the dividends. And the FTSE 100…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Could NatWest shares be 2024’s number one buy for passive income?

For those of us looking to earn some long-term passive income, how does NatWest's 7% dividend yield sound? It sounds…

Read more »

Investing Articles

£12K in savings? Here’s how I could turn that into £13K annual passive income

This Fool explains how investing a lump sum can help her build a passive income stream to enjoy in her…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s why Rolls-Royce shares are now set to fly over the £4 mark

Once again, Rolls-Royce shares are crushing the FTSE 100. Should I add to my holding of this stock at the…

Read more »

Investing Articles

1 under the radar FTSE 100 AI stock investors should consider buying

Our writer explains why this FTSE 100 pick could be a shrewd investment with its established experience of using AI…

Read more »

Investing Articles

Does the beaten-down Diageo share price make it a no-brainer buy?

Harvey Jones spent years waiting for the Diageo share price to look like good value, before finally buying it in…

Read more »