1 under-the-radar growth stock to consider buying now

Jon Smith talks through a FTSE 250 growth stock that recently posted its highest revenue in the past five years and isn’t slowing down.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

Growth stocks have the potential to give my portfolio a large boost through share price appreciation. However, it’s key for me to get in before the rest of the crowd. Sometimes, I can miss the boat and unfortunately failed to enjoy a lot of the rally. But here’s one under-the-radar stock I think hasn’t taken off yet.

That brand we forgot about

The firm I’m referring to is WH Smith (LSE:SMWH). Wait, that stuffy old company that has dull stores on the high street? Yes!

I used to have the same thinking and would never dream of buying the firm. However, my viewpoint changed when I read the full-year results report that came out in late January.

The business crushed it last year, posting its highest revenue for the past five years and the highest profit before tax since 2019. On top of this, the business boosted the dividend per share payment to 28.9p, a large jump from the 9.1p from 2022.

Here are some of the key factors driving growth right now.

An efficient operation

To start with, the focus is all on travel revenue (such as stores in airports). This contributed £1.3bn of the £1.8bn total group revenue for last year. Travel revenue jumped 43% year-on-year, showing the opportunity that exists in these locations.

Thanks to the structure of leases in airports and other travel locations, it’s well positioned to retain this existing revenue as well as push for more store openings this year. It’s also pushing for growth in the US, which is a huge opportunity.

Another factor helping the brand is that its high street stores are outperforming the general trend. Revenue from the 514 stores was basically unchanged versus the previous year. Given the broader trend of lower high street spending, this is actually a good performance.

Granted, this isn’t going to be an area of high growth. But it’s a cash cow, allowing the company to take the steady income stream from these stores and focus on other areas.

The ship hasn’t sailed yet

Of course, there are risks associated with the company. The attempted marketing rebrand at the start of this year had to be dropped after a huge backlash from the trials. This worries me a bit that the firm’s slightly out of touch with what the consumer wants to see from the firm.

Another is the eventual acceptance that the high street stores might need to be closed if performance dips. It might only remain a cash cow for so long before it doesn’t make sense to keep them operating.

Even with these factors, I still see this as a growth stock that could do very well over the coming couple of years. The share price is down 15% over the past year, which tells me I haven’t missed the boat at all.

It could take time (and more positive earning reports) before it starts to move higher. Yet I’m seriously considering buying some of the stock now ahead of any potential move, and feel other investors should think about doing the same.

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.

Jon Smith 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 Growth Shares

Young female business analyst looking at a graph chart while working from home
Growth Shares

This 55p UK stock could rise more than 300%, according to a City broker

This UK stock has fallen from above 800p to below 60p. But analysts at Citi believe it’s capable of a…

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

I think this FTSE 250 trust has all the right ingredients to lock in long-term profits

Today I'm examining the prospects of a private equity investment trust on the FTSE 250 that caught my attention recently…

Read more »

Investing Articles

Does a 30% price drop make YouGov one of the best AIM shares to buy now?

The YouGov share price has fallen by nearly a third in two months. So, does it now make it on…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Billionaire Warren Buffet has 43% of his Berkshire portfolio in Apple stock!

Christopher Ruane looks at some pros and cons of Warren Buffett's biggest holding, and explains why he won't be buying…

Read more »

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

Even at £5+, BP’s share price still looks around 50% undervalued against its peers to me

BP’s share price still looks very undervalued to me, given its strong core business and more pragmatic energy transition strategy.

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

Down 27%, but set for major growth, this hidden FTSE gem looks cheap to me

This powerhouse FTSE stock has embarked on a new growth strategy that’s already showing good results, but it looks undervalued…

Read more »

Investing Articles

Is the Rolls-Royce share price running out of steam?

The Rolls-Royce share price has enjoyed a remarkable rally since late 2022, but there are fears that further positive potential…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

2 shares I’d avoid like the plague in this stock market!

The stock market can be a dangerous place, especially for unwary or inexperienced investors. Here are two stocks I'd never…

Read more »