This FTSE 250 penny stock was yesterday’s biggest gainer. Here’s why

The FTSE 250 penny stock has seen a robust increase over the past year and also reported a good trading update. But would Manika Premsingh buy it?

| 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.

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

Image source: Getty Images

Mitie Group (LSE: MTO) was the biggest FTSE 250 riser yesterday. It rose by 7.2% following its latest trading update. It is not hard to see why. The company has upgraded its profit expectations for the year ending 31 March 2022, on better-than-expected revenues so far in the year. 

Robust update

Let me share the details. For the third quarter of the current financial year, which is the three months ending 31 December 2021, the company saw a solid 51% increase in revenues compared to the same time last year. A little over 10% of this was from Covid-19-related contracts, which was higher than expected. The company, which provides facilities management services, and that includes cleaning services, saw increased demand in these during the pandemic. 

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!

In light of this, the company now expects operating profit of £160m-£165m, up from £145m-£155m earlier. This is the second time in the past year that the company has upgraded its profit forecast! If that is not a reason for the stock to rally, I do not know what is. 

Stumbling blocks for the penny stock

On the other hand, I do see two stumbling blocks to further increases in the stock’s price. The first is that the increase due to Covid-19 contracts was a one-time bump up. This might not be present next year, which in turn could reduce the company’s growth. Of course, it is possible that as the recovery gathers pace, the company’s fortunes could stay resilient. But I am not holding my breath. This is especially so considering that the company has run-up losses a couple of times in the past five years.

Next, its share price has already risen quite a bit. The stock is presently trading at a price-to-earnings (P/E) ratio of 34 times, which is fairly high if you ask me. Some of the most robust FTSE 100 stocks are trading at lower P/Es right now. Basically this says to me that the company’s profit increase is probably already priced in. This in turn means there is limited scope for its stock price to rise. 

Also, its share price is still way below its pre-pandemic levels. If it were really on a rising curve, I think it would have moved way past by now given the strong showing in its financials. To be fair, part of the ostensible decline is because it had a rights issue in July 2020. This reduced its per share price in one go. However, it has had plenty of time since to recover, which has not happened. In the last six months, in fact, it has fallen. Added to this is its elevated P/E, which makes it hard for me to imagine that the stock has won investors’ favour. 

Would I buy the FTSE 250 stock?

I still think this is a good stock for me to buy for the long term. But just to get a better idea of where it is at, I will wait until the next financial release to figure out a good time to buy it. 

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

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

Saucepan on a gas hob
Investing Articles

The Centrica share price is up 65%. Here’s why I sold

The Centrica share price has soared nearly two-thirds in a year. So why has our writer dumped his shareholding?

Read more »

Modern suburban family houses with car on driveway
Investing Articles

As the Howden Joinery share price falls, I’d buy and hold

The Howden Joinery share price has been falling. But Christopher Ruane likes its business model and is weighing adding it…

Read more »

Hand holding pound notes
Investing Articles

The tumbling Persimmon share price means an 11.3% yield! Should I buy?

A falling Persimmon share price has pushed the dividend yield into double-digits. Our writer considers his next move.

Read more »

Innovation and new ideas lightbulb concept 2022
Investing Articles

As stock markets crash, I’d buy these 4 FTSE 100 fallers!

After US stock markets tumbled on Wednesday, the FTSE 100 duly followed suit on Thursday. But falling share prices revealed…

Read more »

Compass pointing towards 'best price'
Investing Articles

A 7.6% dividend yield! Is the Aviva share price a bargain not to be missed?

The Aviva share price has recovered well since the 2020 stock market crash. As one of the top FTSE 100…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Stock market crash: I’m hunting giants for future gains!

In this latest stock market crash, selling pressure is slamming share prices. But some great company stocks are being crushed,…

Read more »

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

With a P/E of just 8, this social media newcomer is a cheap stock pick!

This social media firm looks like a cheap stock pick for my portfolio. For a growing tech firm, it certainly…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Warren Buffett has been selling dividend stocks. Should I be doing the same?

As Warren Buffett sells out of Abbvie, Bristol-Myers Squibb, and Verizon, our writer wonders whether he ought to be looking…

Read more »