Analysts are expecting high growth from this FTSE 250 company

Oliver thinks this FTSE 250 business offers an interesting exposure to the Middle East and Africa. However, he doesn’t like the valuation.

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I’m very selective when it comes to adding new companies to my portfolio. Personally, I’m the kind of character who doesn’t like to take on a lot of risk. I prefer to play the slow and steady game, compounding my cash over many years. Thankfully, the FTSE 250 offers a range of great companies for me to consider investing in with this goal in mind.

Investing in the Middle East and Africa

Network International Holdings (LSE:NETW) is listed on the London Stock Exchange, but it generates its revenue from the Middle East and Africa primarily, and much of its executive leadership is from these regions. It offers a full range of payment processing tools, including credit and debit card processing, mobile and online payment services, and merchant acquiring solutions.

Over the past three years, it has been growing its earnings at a rate that puts it in the top 5% of 2,000 companies in the software industry. As earnings are one of the core drivers of appreciation in share price, its recent results are promising.

However, I’ve noticed that this company doesn’t have a very good balance sheet. The reason I say this is that it has a lot of liabilities. This makes the firm slightly more vulnerable in the case of economic hardship. For example, it could have to take on more debt, making the balance sheet even worse and affecting its ability to finance future growth due to having to prioritize the repayments of its debts.

Analysts are expecting high growth

I’d like to emphasise the high growth I think the company could deliver. Analysts’ forecast that Network International will grow its earnings at a compound annual growth rate of around 50% a year from 2023 to 2026. That’s exceptionally fast if it does come true.

I think the organisation could have a very strong future ahead of it. However, to date, the results haven’t been ideal. Since its initial public offering in 2019, the shares have lost nearly 40% in price. And it hasn’t reported stable earnings growth if I look back as far as 2016. It’s only since 2020 that things have really started to pick up for the company. I wonder if it will be able to maintain the growth it has had in the last few years. I have to say, I find this somewhat unlikely because the firm was founded in 1994 and is still having periods of earnings contraction.

Are the shares good value for money?

The company valuation indicates that investors understand that Network International could have a strong future ahead of it. At the moment, its price-to-earnings ratio is around 40. In my opinion, that’s too high and would expose me to a lot of risk if I were to invest. Therefore, I think there’s a chance that if I bought the shares, I could be in for a turbulent ride. Investments that have the potential to act like that aren’t really my kind of thing.

As I mentioned in my introduction, I’m much more suited to slow, stable, and lower-risk firms. I don’t think this company meets my criteria. Therefore, I’m not going to invest in it right now.

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.

Oliver Rodzianko has no position in any of the shares mentioned. The Motley Fool UK has recommended Network International Plc. 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.

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