National Express (LSE:NEX) is one of my favourite picks on the FTSE 250 right now. The stock offers plenty of upside potential having suffered during the pandemic and in its aftermath.
My portfolio is largely filled with dividend-paying stocks that help to counter the current inflationary pressures. But I’m also on the lookout for stocks with great long-term potential, even if they’re not offering passive income at the moment. That’s where National Express fits, although it has indicated that it will pay a dividend in 2022.
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Discounted share price
National Express is currently trading just above 230p a share. That’s considerably down on its year high of 337p per share and less than half of its pre-pandemic peak.
The intercity and inter-regional bus and coach operator saw its share price nosedive when the pandemic hit. Two years of Covid-induced underperformance have been compounded by soaring fuel prices following Russia’s invasion of Ukraine. The National Express share price briefly dipped under 200p a share in early March before quickly recovering.
Growth prospects
Evidence suggests that National Express has weathered the worst of the pandemic already. In 2021, the coach operator managed to report an underlying operating profit of £87m, representing a considerable improvement from the £50m loss recorded in 2020.
The Birmingham-headquartered firm has said that it intends to resume dividend payouts in 2022 as forecasts indicate that revenue will near pre-pandemic levels during the year.
But while Covid will continue to impact demand for their services in the short term, I believe the coach operator has great long-term prospects. I think the firm will benefit from the green agenda as people swap car journeys for other forms of transportation.
In fact, the UK Climate Change Committee predicts that between 9% and 12% of car journeys will switch to journeys made by bus by 2030. Such a transition could be accelerated by the soaring fuel prices we’re seeing right now.
Headwinds
Covid is still dampening demand for travel and National Express’s bus business continues to receive state aid. But like any company, it will face challenges beyond the pandemic. Wage inflation and rising fuel prices are two of those.
In the short term, high fuel prices caused by the Ukraine crisis are unlikely to have much impact on the business. National Express is fully hedged on fuel through to 2023, reducing its exposure to the current high prices.
It’s also worth noting that future waves of Covid-19 infection and new variants may cause temporary reductions in demand.
The company also recently received a setback after a planned buyout of rival Stagecoach faltered. However, National Express has insisted it doesn’t need the deal in order to deliver its growth objectives.
I’ve been watching the National Express share price for some time, but now I think the only way is up for this stock. That’s why I’ll be adding it to my portfolio soon.
