This unstoppable FTSE 250 stock has touched new 5-year highs! Here’s what I’d do

This FTSE 250 stock has seen a superb climb up in 2021. But with the Omicron variant and macroeconomic headwinds around, can it continue to rise further?

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Business development to success and FTSE 100 250 350 growth concept.

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A number of UK stocks started 2021 well. But somewhere along the way, many have seen their share price rally peter out. So when I came across one that has seen a near consistent increase through the year, I had to update myself on its story. The stock in question is the FTSE 250 sporting goods retailer Frasers (LSE: FRAS). 

The rise and rise of Frasers

The stock’s price crashed, like all others, in last year’s market meltdown. But notably, it started rising from there in fits and starts even before the broad-based stock market rally of November 2020. But come last November, and it really took off. By December of last year, it had reached its pre-pandemic levels and recently, it reached highs not seen since late 2015. Through the year, the the Frasers’ stock has been reaching new five-year highs and yesterday was yet another day when it did so. 

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Strong results update for FTSE 250 stock

This latest jump followed the release of its latest results this week, leading to a 4.2% rise in stock price. For the half-year ending 24 October 2021, the company reported a 26% increase in revenue, compared to the same six months of last year. Its post-tax profits increased by 70% and its cash inflow also rose by 69%. Some increase was to be expected, considering that last year, retailers were hamstrung by the lockdowns. Still, it is good to see the expectations of performance affirmed by the company. 

Also, given the recovery underway, its outlook is positive. It expects its profit before tax for the current year to be in the £300m-£350m range, and this is when it is being conservative. This means there is a good chance that the momentum acquired in the first half of the year could continue in the second half as well. And it could end the year with a near doubling of its first-half profits. 

A note of caution

As positive as this sounds, there are notes of caution here too. The company has warned, as it says, of “well publicised macroeconomic headwinds on the horizon”. In this vein, it mentions cost pressures, supply chain issues, and a potential reduction in consumer spending power, presumably due to high inflation. It also says that the headwinds are “not limited to” these factors only. Besides these, of course there is the emergence of the Omicron variant. Travel restrictions have been put in place and the UK government is asking us to take measures to reduce the spread of the virus as well. These could slow down consumer demand again. 

My assessment  

All-in-all, I do like the stock. And just today, the latest UK growth update has shown an improvement in wholesale and retail trades, even though the overall economy has not really grown. I am cautious, however, going by the latest developments on the coronavirus and the fact that the Fraser share price has climbed a lot during the past year. In this situation, I am not sure how much higher it could climb. If, however, the share price were to drop, say due to a stock market crash, I would buy the FTSE 250 stock. 

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Manika Premsingh 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.

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.

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