Looking for cheap growth shares? Here’s a FTSE 250 stock to consider in June

Pets at Home shares still look dirt cheap, says Royston Wild. Here, he explains why the retailer might be one of the best-value growth shares to buy.

| More on:
Young Woman Drives Car With Dog in Back Seat

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.

The FTSE 250‘s packed with brilliant growth shares right now. And following years of underperformance, investors can pick many of these up at bargain-basement prices.

Take retailer Pets at Home (LSE:PETS). At around 293p per share, it trades on a trailing price-to-earnings (P/E) ratio of 16.9 times. This is some distance below its five-year average of 22 times.

Pets at Homes' share price performance since 2019.
Created with TradingView

The cost-of-living crisis has damaged demand for its discretionary products more recently. But as inflationary pressures ease, could now be the time to buy this recovering growth share?

In the doghouse

Pets at Home shares slumped at the start of the year when it downgraded profits predictions for the full year (to March).

Back then, the retailer slashed its underlying pre-tax profits estimates to £132m, a result it confirmed yesterday (28 May). This was down 3.2% year on year.

Group sales rose 5.2% over the period, to £1.5bn, with turnover rising 5.1% on a like-for-like basis. However, the company was hit by declining revenues as sales of its higher-margin accessories struggled.

At group level, margins dropped 1.2% year on year to 46.8%.

Growth returning?

However, more stable trading of late suggests the retailer could be turning the corner. City analysts certainly believe Pets at Home’s earnings column will rebound over the next couple of years. They forecast growth of 11% in both of the next two financial years.

This reflects expectations that people will have more to spend on their pets as inflation and interest rates likely fall.

A long period of economic stagnation could prove problematic for the FTSE 250 company. On top of this, the business also has to overcome severe competition from supermarkets and online pet retailers to grow revenues.

But Pets at Home’s transformation programme could help it to supercharge turnover from this point on. Investment in branding and its digital platform is already delivering big rewards, and the company recently opened a new distribution centre to facilitate future sales growth.

The cat’s whiskers

On balance, I think Pets at Home shares could be a brilliant long-term investment, given how strongly petcare spending is forecast to continue growing.

Sector sales in the UK have rocketed 150% over the past 20 years and now total £8bn a year, according to Pet Keen. This illustrates how we are devoting more and more attention and resources to our furry companions.

Pets at Home's revenues growth.
Chart excludes FY 2024 revenues. Created with TradingView

As the revenues chart above shows, Pets at Home has been able to effectively harness steady growth in the animalcare market. And a persistent rise in sign-ups to its loyalty scheme’s a good omen. The number of Pets Club members rose another 1.6% last year, to 7.8m.

I think Pets at Home is one of the FTSE 250’s most attractive growth shares. And at current prices, I think it’s a bargain worth serious consideration.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Pets At Home Group 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.

More on Investing Articles

Investing Articles

Turning a £20k ISA into a stunning £38,023 a year passive income

Harvey Jones says investing regular sums in a Stocks and Shares ISA is a brilliant way of building up a…

Read more »

Growth Shares

Growth stock YouGov just fell 46%. Time to buy?

YouGov’s share price just fell from 820p to 440p after a poor trading update. Is now a good time to…

Read more »

Investing Articles

2 mouthwatering FTSE growth stocks I’d buy and hold for 10 years

Growth stocks purchased today could be the gateway to many years of capital growth and returns. Here are two picks…

Read more »

Investing Articles

Can the IAG share price really be as dirt cheap as it looks?

While most shares have recovered since the Covid days, the IAG share price is staying stuck to rock bottom. Surely…

Read more »

Investing Articles

BAE Systems shares are flying! Have I missed the boat?

Sumayya Mansoor looks into whether or not BAE Systems shares are still a good buy for her portfolio after the…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

1 heavyweight FTSE 100 share I’d buy as London retakes its crown

Some Footsie firms are extremely large, but that doesn't mean they couldn't get even bigger. Here's one such FTSE 100…

Read more »

Investing Articles

I’d buy 5,127 National Grid shares to generate £250 of monthly passive income

With a dividend yield of 6.5%, Muhammad Cheema takes a look at how National Grid shares can generate a healthy…

Read more »

Investing Articles

The FTSE 100’s newest member looks like a no-brainer to me!

This Fool explains why she sees the newest member of the FTSE 100 as a great opportunity after its recent…

Read more »