Up by 61%! Can this FTSE 250 stock make me richer?

This FTSE 250 stock is surging right now as rising infrastructure spending is blowing powerful tailwinds. But is a 60% return just the tip of the iceberg?

| More on:
Photo of a man going through financial problems

Image source: Getty Images

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.

Many FTSE 250 companies have seen their valuations get slashed in 2022. And Hill & Smith (LSE:HILS) was no exception, with this industrial engineering business seeing its share price tumble roughly 50% by September last year.

But in the last 12 months, things seem to be turning around, with the company’s market cap surging by 61% to the point where it’s almost in line with its 2021 peak levels. What’s going on? And can this upward trajectory continue to climb even higher?

Record numbers, record performance

As a quick reminder, Hill & Smith provides a range of infrastructure services to the UK and US construction sector as well as rail and energy generation industries. But it’s in America where the company seems to be stealing the show.

With the US government ramping up its spending into renovating its ageing electrical grid infrastructure, Hill & Smith has had no trouble finding work. As such, its Engineered Solutions division saw sales grow by an impressive 33%, with operating profits more than doubling on the back of expanding profit margins.

Similarly, with demand for rust-proof steel rising, its Galvanizing Services segment also achieved double-digit growth. And while underlying earnings only grew by a modest 6%, that was still sufficient to achieve a new record high.

Overall, Hill & Smith’s top line over the first six months of 2023 expanded by 20%. And with underlying operating margins growing from 12.5% to 14.9%, earnings grew at a much faster pace of 43%. Considering the current economic climate, this level of growth, especially for an industrial business, is an impressive sight.

The UK hasn’t fared as well

Considering the rampant growth across the pond, it’s not surprising to see shares bounce back from last year’s correction. However, operations here at home haven’t managed to keep up.

Looking back at the Engineered Solutions segment, UK sales actually shrunk as general spending in the construction sector ground to a halt. Management was able to offset some of this volume decay through higher pricing, but it still resulted in a 4% shrink in sales.

Meanwhile, a further 19% reduction in volumes from British customers was reported in its Galvanizing Services. And a similar story seems to be present for all of the group’s other divisions as well. And management expects these challenges to continue throughout the rest of this year, possibly bleeding over into 2024.

Can the stock continue to climb?

With around 45% of sales stemming from the UK, the slowdown in British infrastructure and industrial spending is having a significant impact on Hill & Smith’s performance. Yet, all of these problems are currently being offset by the strong growth in the US.

So, can the firm continue to expand internationally until market conditions improve at home? In my opinion, yes.

Apart from investing in the national energy grid, the US government has recently passed multiple infrastructure investment bills into law. As such, finding new projects and opportunities shouldn’t be challenging for this enterprise. And with a forward price-to-earnings (P/E) ratio of 16.3 – in line with its five-year average – this growth opportunity looks fairly priced in my eyes.

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.

Zaven Boyrazian 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

Young black colleagues high-fiving each other at work
Investing Articles

If I could buy just one FTSE stock right now, it would be this high flyer!

Mulling over the choice of only buying one FTSE stock, Sumayya Mansoor explains why she would choose this discount retailer.

Read more »

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

8% or 4%? Is one dividend yield twice as good?

When it comes to income shares, could less be more? This writer considers the role of dividend yield in his…

Read more »

British Pennies on a Pound Note
Investing Articles

I’m eyeing this passive income machine for my SIPP in December!

A double-digit dividend yield is not the only thing that has grabbed this writer's attention when it comes to considering…

Read more »

2024 year number handwritten on a sandy beach at sunrise
Investing Articles

One undervalued growth stock I’m eyeing up ahead of 2024!

This growth stock caught the eye of our writer. She breaks down its investment viability as she looks to start…

Read more »

Investing Articles

3 reasons the BP share price could surge in 2024

Stephen Wright outlines why resilient oil prices, lower inflation, and the avoidance of a global recession could send the BP…

Read more »

Investing Articles

Could buying these 3 AI shares be like investing in Tesla in 2010?

I wonder if investing in these three AI stocks could match the meteoric rise in the value of Tesla shares…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Will the stock market Santa rally continue through 2024?

Here’s why I think the signs look good for a potentially enduring broad-based stock market rally through December and beyond.

Read more »

Young Asian woman holding a cup of takeaway coffee and folders containing paperwork, on her way into the office
Investing Articles

If I’d put £10k in Greggs shares 3 years ago, here’s how much I’d have now

Greggs shares have served up some very tasty returns for shareholders over the last three decades. But what about the…

Read more »