Up 75% in 5 years, I reckon this FTSE 250 still has lots to give!

Our writer explains why this FTSE 250 stock could still continue to provide growth and returns despite already being on a good run of late.

| 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.

One FTSE 250 stock I reckon looks like an exciting opportunity is Spire Healthcare (LSE: SPI).

Here’s why I’d be willing to buy some shares when I next have some investable cash.

Private healthcare

Spire is a private healthcare firm with 40 private hospitals and eight clinics. The business caters to those individuals with private medical insurance, as well as others willing to pay as a one-off to have private medical care. Interestingly, it also helps the NHS with some services as the ailing state-backed provider continues to struggle with backlogs.

Spire shares have been rising in recent years. Over a 12-month period they’re up 11% from 215p at this time last year, to current levels of 239p. Going back even further, an impressive rise of 75% from 136p to current levels is hard to ignore.

My investment case

The current state of the NHS is where my belief that further growth is on the cards. Waiting lists are only rising, and many are turning to the private sector for help — those who can, at least.

Furthermore, with resources stretched, the NHS is already turning to providers like Spire to lend a hand. As the population is growing, and ageing, this reliance could also grow. Both aspects could help boost Spire’s performance and returns.

There are two issues that worry me for Spire. One is that of the debt levels on its balance sheet. They’re probably a bit higher than I’d like, and this is a worry. Sometimes paying down debt can take precedence over returns, and can hurt investor sentiment too.

The other issue I have is an overhaul of the NHS could mean the government could end outsourcing operations to private firms. At present, Spire’s NHS revenues are growing nicely and contributing to the firm’s growth. If this were to end, performance and returns could be dented.

Back to the bull case then, I can’t see the NHS radically changing overnight. Such an endeavour can take years, if not decades, especially with the current economic climate as it is. Spire’s recent results have only shown performance growth, and I’m confident this trend will continue.

Next, Spire shares offer a small dividend yield of just under 1%. I can see this level of return growing if performance continues on an upward trajectory. Although, I do understand that dividends are never guaranteed.

Finally, based on analyst forecasts, the shares look cheap on a forward price-to-earnings growth ratio of 0.8. Any reading below one can indicate a share is undervalued. However, I do understand forecasts don’t always come to fruition.

Final thoughts

I only see the NHS’ reliance on private firms, and people looking to go private for medical treatment, spiking in the years to come. This could benefit Spire, if you ask me.

Overall, solid growth prospects, an enticing valuation, and potentially growing returns help my investment case.

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.

Sumayya Mansoor 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

Photo of a man going through financial problems
Investing Articles

2 dividend shares I’d avoid like the plague in today’s stock market

The UK stock market is full of high-yield dividend shares that could equate to a steady stream of passive income.…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

£17,000 in savings? Here’s how I’d aim to turn that into a £29,548 annual second income!

Generating a sizeable second income can be life-enhancing and can be done from relatively small investments in high-dividend-paying stocks.

Read more »

Investing Articles

With as little as £300 a month invested, this stock could net £16,000 a year in passive income

Putting a few hundred pounds each month into the stock market could eventually generate a five-figure annual passive income, this…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

This dividend stock could pop next week!

This dividend stock happens to have one of the biggest dividend yields I've come across -- 10.7% -- but I'm…

Read more »

Investing Articles

Up 81%, can this FTSE 100 turnaround share keep surging?

This recovering retailer has been one of the FTSE's greatest performers over the past year. Royston Wild considers whether it…

Read more »

Happy couple showing relief at news
Investing Articles

£10,000 in savings? I’d buy 4 passive income shares to target a £100 per week second income!

By buying passive income shares today, I have a great chance to eventually make life-changing wealth. Here's how I'd invest…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

I think this may be an unmissable chance to buy an oversold UK share before it rallies hard

Harvey Jones piled into this beaten down UK share because it looks cheap and offers a sky-high yield. Now he's…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How I’d invest £500 a month in shares to target a £29,000 second income

Investing in shares is a tried-and-tested way to build a second income. Our writer explains how he’d do it, starting…

Read more »