Here’s why I’m avoiding this FTSE growth stock just now

Jabran Khan delves deeper into this FTSE growth stock and explains why he would not invest in shares for his portfolio just now after some mixed results.

| 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.

Parsley Box Holdings (LSE:MEAL) is a stock I cannot see myself investing in for my portfolio right now. Despite being heralded as a potential FTSE growth stock, I am not buoyed by its recent results and the competition it faces.

FTSE AIM newcomer

Parsley Box is a firm specialising in delivering ready-made meals to individuals ages 60 and above. The average age of the population in the UK is increasing. This increase presents a good opportunity for Parsley to capitalise on the growing demographic. It has been investing heavily in marketing its products, including a £1.2m television advertisement.

Parsley was founded in 2017 and only joined the FTSE AIM in March. At that time, shares began trading for 200p per share. As I write, shares are currently trading for 103p per share, which is close to a 100% drop in share price. As a savvy investor, I understand newer, smaller firms can experience volatility on the stock market, especially those that are labelled FTSE growth stocks.

Mixed performance and risks

On Tuesday, Parsley released its interim results for the six months ending 30 June 2020. They were a mixed bag in my opinion, and that is a red flag for me as a potential investor. The headline that stuck out to me were pre-tax losses of £5.4m, up from £1m a year ago. This included costs of £1.1m associated with its initial public offering (IPO).

Parsley reported revenues rose by 26% to £14m. This was driven primarily by a 76% increase in active customers. Orders from returning customers grew by 38% but new customer additions had slowed down as pandemic restrictions were eased. Returning customers is positive as it shows a loyal following.

The losses Parsley is experiencing are not uncommon for a new FTSE growth stock. I understand costs linked to an IPO and lots of marketing are necessary to succeed in the long term. My concern is the lack of new customer sign ups. This risk tells me that perhaps the firm did well due to restrictions during the pandemic and now that reopening is underway, progress may tail off. I believe that new business is just as important as repeat customers.

In addition to this risk, competition is intense and could be detrimental to Parsley’s progress. Established retailers such as Tesco, and growing discount supermarkets such as Aldi and Lidl, are direct competition for Parsley and its offering. This will affect Parsley’s future prospects in my opinion.

My verdict

As I stated earlier, I would not buy shares in Parsley Box right now. There are positives about the firm and its direction and it could be a successful FTSE growth stock story in the very long term. Right now, there are too many risks that do not sit well with me.

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.

Jabran Khan 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

Bearded man writing on notepad in front of computer
Investing Articles

Down 75%, has the Deliveroo share price bottomed?

The last 12 months have been torrid for the Deliveroo share price. But does this open an opportunity to grab…

Read more »

Smartly dressed middle-aged black gentleman working at his desk
Investing Articles

Is now FINALLY the time to buy Lloyds shares?

Lloyds shares have leapt in value as market confidence has improved. Should I buy the FTSE 100 bank before it…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

3 high-dividend FTSE 250 stocks to buy right now!

The London Stock Market is packed with top high-dividend stocks to buy. Here are a handful I'm considering buying, despite…

Read more »

Woman using laptop and working from home
Investing Articles

How I’m using my Stocks and Shares ISA to generate lifelong passive income

I’m looking to build a portfolio of assets that will pay me an income in my retirement. Here’s how I’m…

Read more »

Close-up of British bank notes
Investing Articles

Is this the best time in a decade to start buying FTSE 100 dividend shares?

UK dividend yields are rising again. I reckon any time is a good time to start buying dividend shares. But…

Read more »

Smartly dressed middle-aged black gentleman working at his desk
Investing Articles

Director dealings: Rolls-Royce, Admiral, Dunelm

Director dealings can indicate whether a company's doing well. So, here are this week's biggest insider transactions at three FTSE…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

I’d start investing in the FTSE 250 with these 2 stocks

Were our writer completely new to the FTSE 250, he’d buy shares in these two companies today.

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

3 reasons I’d aim to earn extra income by investing £1,000 in dividend shares

Our writer has a lot of ideas to earn extra income. Here he explains why the one he likes the…

Read more »