One FTSE 250 stock I notice has been on a great run recently is Senior (LSE: SNR). I believe the shares could continue to climb but is now a good time for me to buy some shares for my holdings?
Easily beating the FTSE 250 index
Senior produces and sells technology components and systems in the aerospace, defence, land vehicle, and energy markets. Split into two divisions, aerospace and flexonics, the business has an international presence with operations primarily in North America and Europe.
As I write, Senior shares are trading for 178p. At this time last year, they were trading for 130p, which is a 36% increase over a 12-month period. For context, the FTSE 250 index as a whole is down 2% during the same time period.
The future looks bright
Senior’s two divisions are primed for huge growth, in my opinion. To start with, aerospace is a burgeoning sector as the impact of the pandemic has lessened. Airlines are building their fleets up and defence spending is also rising. Next, flexonics is also set for growth due to the move away from traditional vehicles towards electric vehicles and energy-related spending. Both of these aspects should help boost growth for Senior. In turn, the shares could soar, boosting earnings and investor returns.
Senior has seen its performance rebound after the pandemic. It has grown revenue and profit for the past two years. In addition to this, analysts reckon annual earnings could rise by more than 50% this year. Furthermore, earnings growth forecasts for the two years after are currently estimated at 37% and 40%, respectively. However, I do understand that past performance is not a guarantee of the future and forecasts don’t always come to fruition.
Finally, Senior shares are currently trading on a price-to-earnings growth (PEG) ratio of just 0.5. A ratio of below one can indicate that shares are undervalued. In addition to this, the shares would boost my passive income with a dividend yield of 1%. This is below the FTSE 250 average of 2% but I believe this could grow in line with earnings over time. I do understand that dividends are never guaranteed.
Risks and my verdict
From a bearish perspective, Senior could encounter issues. There have been many supply chain issues for many businesses in recent times and this could mean Senior cannot produce or deliver on orders if these issues were to impact it. This could hinder performance and returns.
Another risk to note for Senior is its appetite for acquisitions. These don’t always work out and sometimes can be costly to resolve, either by selling a newly acquired business or pumping lots of money into the new firm to amalgamate it into the existing business. This could impact sentiment and investor returns.
Overall I like the look of Senior shares. I would be willing to buy some shares for my holdings if I had the spare cash to invest. It is one of a few FTSE 250 stocks to have experienced share price growth during the current market volatility. The fact it is operating in a burgeoning market primed for huge growth, alongside its cheap valuation, helped me make my decision.