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I believe this beaten down FTSE 250 stock will bounce back!

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FTSE 250 stock Unite Group (LSE:UTG) suffered when the pandemic struck. With reopening in full effect I believe it will bounce back — should I buy shares for my portfolio at current levels? 

Pandemic impact

Unite Group is the UK’s largest owner, manager, and developer of purpose-built student accommodation. It has 180 properties in 27 towns and cities throughout England, Scotland, and Wales, and it employs close to 2,000 people.

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When the pandemic struck, universities, and colleges had to close their doors for months on end. Entire semesters were lost. When classes restarted, they were primarily online. Student accommodation firms such as Unite suffered due to the lack of uptake in occupancy the following year. The grading debacle also contributed to lower student numbers. However, since the current academic year began in September, things are edging closer back to normal for Unite.

As I write, shares are trading for 1,106p. A year ago, shares were trading for 993p, which is a 11% return. Shares have dropped from 1,231p to current levels since the beginning of September, which I believe is a direct reaction to Unite’s trading update for Q3.

Trading update and outlook

Unite’s trading update was released to the market this month. It seems to me the FTSE 250 incumbent’s update spooked investors as its share price has dropped by 10% since then.

Unite’s update covered Q3 for the quarter ending 30 September. Unite pointed to a record demand for places at universities for 2021-22 but mentioned that restrictions on international travel and the grading issues mentioned have impacted occupancy in a small number of cities. The number of places accepted in universities was down by 1.6% compared to 2020-21, which has also affected occupancy.

Unite went on to confirm that 94% of bed spaces were let across its total portfolio, which is up from 88% in the previous year. The 94% figure was still lower than management’s expectation of 95%-98%. International travel restrictions have had a real impact on demand from China, where lots of students usually come from for undergraduate and post-graduate studies.

Financially, Unite mentioned that full-year results will be below expectations. I believe this has affected the share price and investor sentiment.

FTSE 250 stocks have risks

The obvious risks for Unite are the continued impact of the pandemic. Further restrictions nationally and internationally could hamper any recovery prospects. Rising inflation and cost of living in the UK could also impact new student numbers in the future too.

I do believe student numbers and in turn the need for accommodation are heading in the right direction. I could understand why the Unite share price has dropped after its update. Personally, I think it is a bit of an overreaction. I think Unite will bounce back and surpass pre-pandemic trading in the longer term. Currently, I would be willing to risk a small sum of money to add shares to my portfolio. I would expect to see some short to medium term pain, however. 

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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.

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