October is not an especially busy month for company news. But we do have some coming from FTSE 250 firms that I will be paying attention to. I’m looking for new ideas for my portfolio in the winter months, and any of these three could make it.
I often get my breakfast from Greggs (LSE: GRG), though I’m cautious of stocks where I have a personal connection. I’d have done well to have abandoned that caution, mind. The Greggs share price has been on a tear since November, and has gained approximately 50% over the past two years.
A previous growth spurt in 2019 came to a rapid halt in the 2020 stock market crash. Now it looks like it’s just carried on from where it left off. But has the rapid rise led to growth share over-valuation? Or is Greggs still one for me to buy? That all depends on the stock valuation, and on whether earnings growth can keep pace with the share price.
First-half earnings per share (EPS) came in at 43.2p, 52% ahead of the same period in 2019. I expect to see trading improve further in the second half. But even then, I estimate a full-year price-to-earnings (P/E) ratio of around 30. To justify that, we’ll need to see ongoing growth. There’s a Q3 trading update due on 5 October, which should give us a clue.
Beating the FTSE 250
The Dunelm (LSE: DNLM) share price has climbed 75% in the past two years, easily outstripping the FTSE 250’s 20%. Results for the year to 26 June showed a 26% year-on-year rise in sales, with EPS up an impressive 47%. Those comparatives are against 2020, though. But the pandemic had only a modest effect on the home furnishings retailer, with EPS dropping just 14% last year. EPS for 2021 is still 25% ahead of 2019’s figure.
The ordinary dividend came in at 35p per share (for a 2.3% yield on the current Dunelm share price). That’s only a modest level of income, but there was a hefty special dividend of 65p per share into the bargain.
It looks like investors are betting on a continuation of Dunelm’s earnings growth into 2022. And we should get some clue how right they are when we see the Q1 trading update due on 14 October. With Dunelm shares on a trailing P/E of 24, even modest growth might be enough.
Slowdown, what slowdown?
The last of my three is FTSE 250 housebuilder Bellway (LSE: BWY). The sector is one of my favourites right now, partly because it’s falling out of favour. The UK’s stamp duty holiday is coming to an end. Many fear interest rates will increase too, especially now that the Bank of England expects inflation to exceed 4% by the end of the year. It’s keeping rates on hold for now, but for how much longer?
That’s leading to pessimism over the housing market. But you know what? Housebuilders don’t appear to be seeing any slowdown. Whether Bellway is the first to report weakening sales is something we’ll know on 19 October. That’s when the company will release results for the year to July.
It will leave us a few months behind the latest economic environment, mind. So I’ll be mostly looking for the company’s outlook thoughts, and at how its forward order book is holding up.
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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.