These classy FTSE 250 growth stocks could be FTSE 100-bound

Making the jump to the FTSE 100 (INDEXFTSE:UKX) is no mean feat but Paul Summers thinks these two growth stocks could be next.

| 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.

As things stand, a company needs to boast a market capitalisation upwards of £5.5bn to make it into the FTSE 100. Challenging as this may be, I can think of two growth stocks that could be soon be making the leap in the next quarterly reshuffle.

Post-pandemic boom

Kitchen supplier Howdens Joinery (LSE: HWDN) looks a good bet for promotion, especially after today’s well-received update on trading.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Having benefited from the home improvement boom, Howdens announced that this momentum had continued into the second half of its financial year. UK revenue from 13 June to 30 October 2021 was just under 21% higher than in the same period last year. This brings year-to-date revenue growth to a stellar 37.7%.

Positively, this performance wasn’t confined to Howden’s home market either. International sales growth was also strong, up 16.6% over the three quarters and 39.2% year-to-date. 

Based on this, Howdens now believes pre-tax profit for the full year will come in around the top end of current analyst forecasts”. This would be somewhere in the region on £360m. That all sounds rather good to me. So, would I buy today?

Well, despite having climbed 43% in value over the last 12 months alone, HWDN shares still look pretty fairly valued. A forecast price-to-earnings multiple of 21 before markets opened for a high-quality market leader doesn’t seem excessive. After all, the company regularly posts excellent returns on capital.  

Then again, recent momentum could slow, particularly if consumers begin tightening their purse strings. Indeed, Howdens already expects a “more normalised trading pattern and performance in 2022“. There’s also inflation to ponder, even if the company appears to have been successful in passing on higher costs to its customers so far. 

Whether these headwinds are enough to delay Howden’s entry into the FTSE 100 is hard to say. As a Foolish investor focused on long-term returns, however, I must say that I continue to regard this company as a classy outfit. I’d have no issue taking a position in the stock today.

Primed for FTSE 100 promotion?

Another FTSE 250 growth stock that could potentially be moved to the FTSE 100 in the next reshuffle is industrial and electrical equipment distributor Electrocomponents (LSE: ECM).

Half-year numbers from the £5.3bn market cap company are due on Thursday. As things stand, I don’t expect much in the way of bad news for those already invested. 

Last month, ECM stated that trading had been strong in all regions in which it operates. In fact, total like-for-like revenue growth over the six-month period has already been estimated at 31%. That’s despite the Covid-19 ‘pingdemic’ and cost pressures many businesses are wrestling with. This led the company to predict that full-year revenue growth and adjusted operating profit margin would now be “slightly ahead” of previous guidance.

Shares change hands for almost 26 times forecast earnings. That’s not exactly cheap considering the pretty average margins in this line of work (roughly 8%).

Like Howdens, ECM will face tricky comparatives going forward, too. Profit is also likely to be “more weighted to the first half”. To me, this suggests things are as good as they’re going to get for now. 

Still, I can see why investors have been bidding the price up over the last 12 months. This presents as another well-run company with minimal debt. As such, it’s one I’d at least consider buying regardless of which index it features in. 

One FTSE “Snowball Stock” With Runaway Revenues

Looking for new share ideas?

Grab this FREE report now.

Inside, you discover one FTSE company with a runaway snowball of profits.

From 2015-2019…

  • Revenues increased 38.6%.
  • Its net income went up 19.7 times!
  • Since 2012, revenues from regular users have almost DOUBLED

The opportunity here really is astounding.

In fact, one of its own board members recently snapped up 25,000 shares using their own money...

So why sit on the side lines a minute longer?

You could have the full details on this company right now.

Grab your free report – while it’s online.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Howden Joinery 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.

More on Investing Articles

Buffett at the BRK AGM
Investing Articles

What Warren Buffett’s wisdom and investing in stocks will teach you about life

Investing is a journey of self-discovery. So what will stocks and the words of legendary investor Warren Buffett teach you…

Read more »

Smiling senior white man talking through telephone while using laptop at desk.
Investing Articles

5 ‘no-brainer’ income stocks to buy today!

Amid soaring inflation, I'm looking at these income stocks, offering big yields, to grow my portfolio.

Read more »

Trader on video call from his home office
Investing Articles

How I’d buy the dip in quality UK stocks with £750

Jon Smith explains the concept of buying the dip, and talks through the UK stocks he's going to buy at…

Read more »

Woman looking at a jar of pennies
Investing Articles

5 UK penny shares to buy with £5,000 today

It's hard to remember a time when there were as many tempting penny shares around as now. Here are five…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

The Scottish Mortgage share price keeps falling. Should I buy?

The Scottish Mortgage share price has collapsed from its all-time high in little more than six months. Is it now…

Read more »

UK money in a Jar on a background
Investing Articles

Value investing isn’t dead! My top stocks to buy as inflation hits 9%

As value investing principles come back into fashion, Andrew Mackie looks at the current backdrop and shares what he's investing…

Read more »

Windmills for electric power production.
Investing Articles

Which FTSE 100 shares would I buy to offset higher fuel bills?

Rishi Sunak unveiled a windfall tax this week, hitting shares of energy firms, and especially oil & gas producers. But…

Read more »

Concentrated young african american black guy sitting on heated floor at modern coffee table in living room, looking at laptop screen
Investing Articles

Woodbois shares: should I buy the dip?

Woodbois Ltd (LON: WBI) shares have backtracked from their recent high. Partial to the odd penny stock, Paul Summers considers…

Read more »