The Motley Fool

This FTSE 250 stock is at all-time-highs. Here’s why I’d still buy it

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.

Business development to success and FTSE 100 250 350 growth concept.
Image source: Getty Images

FTSE 250 self-storage services provider, Big Yellow Group (LSE: BYG) touched all-time-highs last week in a run-up to its results this week. The results did not disappoint either. 

Big Yellow Group shows healthy growth

For the year ending March 31, the company reported a 4.6% revenue increase yesterday. Of this, store revenue, which accounts for much of the total, grew by a strong 5.7%. Notably, the segment’s final quarter was particularly strong, with a 9.7% revenue rise, possibly reflecting recovering economic conditions. 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Its pre-tax profits were up by 5.1% as well, and notably, going by its statutory numbers they were up by a whole 185% because of the rise in the value of investment properties. 

Favourable structural changes

Big Yellow Group is among the beneficiaries from the long-term structural shift towards online sales. This is because online sales require logistical support, that includes warehousing, one of the services provided by the company. While it was always expected to happen, the trend accelerated last year because of the pandemic. It points to this and “the shortage of quality flexible mini-warehousing space” as demand drivers for the company.

Strong performance in the past year is also visible in other companies related to online sales, from online retailers to packaging companies and from warehousers to delivery providers. These include FTSE 100 companies like Ocado, Mondi and Just Eat Takeaway, all of which benefited from last year’s lockdowns. 

Competitively priced

With a structural shift in its favour, I think the company’s price-to-earnings (P/E) ratio is still competitive. If I consider the ratio based on statutory earnings, it is at a low 8.7 times, and for me that makes Big Yellow Group a screaming buy. Because statutory metrics standardise financial reporting across companies, I think it is important to consider this measure.

At this time, I also need to understand its P/E when the impact of property investment valuation gains mentioned earlier is removed from earnings. This is because, the valuation gains may be one-offs that do not reflect the earnings from operations. Based on this measure, the P/E is at a much higher 31.2 times.

But even going by this measure, it is not the priciest stock around. According to my calculations, there are at least 70 FTSE 250 stocks that have a higher P/E than Big Yellow Group. In other words, it is attractively priced, making it a clear buy for me.  

The red flag

The only red flag I see is overestimation of the prospects for online sales. Companies like Ocado and Just Eat Takeaway expect sales growth to slow down this year as there is greater freedom of movement. If there is a higher than expected moderation in growth, it would reflect in their stock prices too. And the same is true for Big Yellow Group. 

My takeaway

However, the move towards online will not stop. It will only slow down. So for a still moderately-priced stock, there is potential for further gains. It is a long-term buy for me. 

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to get access to our presentation, and learn how to get the name of this 'double agent'!

Manika Premsingh owns shares of Ocado Group. The Motley Fool UK has recommended Just Eat N.V. and Ocado 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.