1 FTSE 250 stock I’d buy with £500

Rupert Hargreaves takes a look at one FTSE 250 stock that’s benefiting from the economic recovery and returning cash to investors.

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If I had £500 to invest today, I’d buy the FTSE 250 stock Hays (LSE: HAS). I think the recruiter is a great way to invest in the global economic recovery following the pandemic, although growth up until this point has been relatively slow. 

FTSE 250 growth stock 

According to its own figures for the year ended 30 June, Hays’ net fee income declined 8% on a like-for-like basis. However, profit before tax increased 2%, as the group benefited from lower costs. 

Most importantly, Hays has a lot of cash on its balance sheet, reporting a net cash balance of £410m, up 12% year-on-year, at the end of June. Management declared a special dividend of 8.9p off the back of this growth. 

The special dividend will reduce that cash balance by £150m. Nevertheless, I think the firm will have plenty of funding available to drive its recovery even after this payout. 

Indeed, management has already said it’s seen a notable increase in hiring activity during the first few weeks of the second half of 2021. And it’s expanding to meet this growing demand.

Group consultant headcount increased 4% overall in its last financial year, with the number of consultants rising 10% overall in the second half. The FTSE 250 company is expecting to add a “significant” number of new consultants this year to help improve overall growth. 

Aside from the above figures, one statement stood out in Hays’ full-year report. Commenting on the outlook for the group, CEO Alistair Cox said: “We now see a clear route back to, and then exceeding, pre-pandemic levels of profit, faster than we envisaged even six months ago.

This is an incredibly positive statement and suggests the group plans to soon expand beyond its pre-pandemic footprint. 

Income champion 

The above implies that investors should see continued growth from the company’s shares as we advance. That’s why I’d buy the stock for my portfolio today.

Its healthy balance sheet and recent special dividend also suggest management will be rewarding investors with cash distributions as profits increase. Last year, the company paid out around 10p per share in regular and special dividends. That equates to a dividend yield of 6.3%. Although there’s no guarantee this will be repeated, but I think the figures illustrate the FTSE 250 stock’s potential. 

Unfortunately, despite the company’s improving prospects, it’ll face some risks and challenges going forward. Recruitment is a highly cyclical sector. In a sudden economic downturn, Hays may be one of the first to feel the pressure. The industry is also incredibly competitive, and recruiter wages are rising. This could add downward pressure to its profit margins as the firm competes for growth. 

Despite these risks and challenges, I’d buy the stock as an income play and recovery investment. As the global economy starts to move on from the pandemic, I reckon Hays should continue to benefit. 

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 considered so you should consider taking independent financial advice.

Rupert Hargreaves 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.

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