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?

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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. 

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. 

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 assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »