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:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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

Investing Articles

Here’s why I’m buying FTSE 100 shares not S&P 500 stocks

Christopher Ruane has bought S&P 500 shares and may do so again. But for now, he's more focused on this…

Read more »

Investing Articles

Up 23% in a month, can this FTSE 100 stock continue to soar?

Airtel Africa's recently been the FTSE 100’s top-performing stock. With huge opportunities for growth ahead, is it set to continue?

Read more »

Investing Articles

This British wine-producing penny stock might just be vastly undervalued

This penny stock's certainly regained my interest. It's slumped and appears to be trading only at a modest premium to…

Read more »

Middle-aged black male working at home desk
Investing Articles

2 ways to target big riches with FTSE 250 stocks!

Searching for ways to boost your UK shares portfolio in 2025? Consider buying these FTSE 250 stocks and funds, suggests…

Read more »

Young Caucasian woman with pink her studying from her laptop screen
Investing Articles

Time to buy Nvidia shares before fresh all-time highs?

Nvidia shares began 2025 at an all-time high before a big drop in the last week or two. Our writer…

Read more »

Investing Articles

£10k invested in Scottish Mortgage shares after the DeepSeek crash is now worth…

Harvey Jones thought his Scottish Mortgage shares were heading for a bumpy ride when DeepSeek emerged last month. Then he…

Read more »

Investing Articles

Up another 8% in a week! So what’s stopping me from buying IAG shares? 

Harvey Jones is desperate to add high-flying IAG shares to his portfolio before they climb even higher but there's a…

Read more »

Happy couple showing relief at news
Investing Articles

The Bank of England’s slashed its growth forecast but the FTSE 100 doesn’t seem to care!

On the day the UK’s central bank halved its forecast for growth in 2025, the FTSE 100 reached a record…

Read more »