With £1,000, I’m buying this dirt-cheap FTSE 250 stock in a heartbeat

The FTSE 250 has sunk around 7% over the past year, which has led to several opportunities. Here’s one of my personal favourites.

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The FTSE 250 is home to many up-and-coming companies, alongside several far more established ones. This makes the index more diverse than the FTSE 100, and as many would agree, less boring. However, the ‘boring’ FTSE 100 has outperformed the FTSE 250 over the past year, rising over 7%, in contrast to the FTSE 250 declining over 11%. This has led to several bargains within the index, and National Express (LSE: NEX) is one of my personal favourites.

Recent updates

As the lockdowns prevented the population from travelling, National Express was one of the big sufferers. In fact, in 2020 the coach operator reported a loss of around £380m. Last year, although the performance considerably improved, operating losses still totalled over £36m. It has been a very difficult couple of years for the group, and the National Express share price has sunk nearly 50% since before the pandemic. In the past year, it has also fallen around 17%, thus underperforming the wider FTSE 250 index. 

However, there are several signs that the group is recovering. For example, in 2022, the company expects revenues of £2.7bn, which is equal to 2019 levels. This has been driven by the performance of the group’s international operations. Firstly, ALSA, which operates in Spain and Morocco, is already recording revenues around 15% higher than before the pandemic. Secondly, German rail revenue is nearly four times pre-pandemic levels. Finally, in the US, shuttle revenues currently equal around 90% of pre-pandemic levels.

The UK operations are also progressing nicely. For example, passenger numbers now total around 85% of pre-pandemic levels and there have been noticeable signs of recovery in airport travel volumes. For the long term, I am also impressed in the group’s continued decarbonisation of vehicles. In an ever-increasing climate-conscious society, I believe that this may help differentiate National Express from other coach operators. 

What about the future? 

Unfortunately, there are many current risks for the company. For example, in the US there are driver shortages, which has resulted in around 10% of the contracted routes not currently being run. This has also caused wage inflation, a factor that is straining profit margins. Therefore, the company’s recovery in profitability is expected to lag revenue recovery. 

However, this does not take away from a very promising future for the firm. Between 2022 and 2027, it expects to deliver at least £1.25bn in free cash flow. This will be used for investment into the firm, balance sheet deleveraging and growing returns to shareholders. The firm also expects to reinstate its dividend after the full-year 2022 results, highlighting the strong recovery that has been made. 

What am I doing with this FTSE 250 stock? 

I bought National Express shares near the start of the pandemic and have continued to buy throughout. Right now, I am also confident about the company’s long-term future. In particular, amid the high cost of living, National Express offers a far cheaper way for the population to travel. This will hopefully continue to boost demand and raise revenues. Therefore, I’m tempted to add more National Express shares to my portfolio. 

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.

Stuart Blair owns shares in National Express. 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.

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