Here’s why these FTSE 250 shares could be set for explosive growth

Growth stock investing is rising in popularity again, and the FTSE 250 is where investors typically look for potential buys.

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The FTSE 250 is in one of those rare times when it’s fallen behind the FTSE 100. But I wonder if we could be on the verge of a new surge.

After soaring in the Covid crisis, mid-cap shares have fallen out of favour. And over the past five years, the index has gained just 4%. That compares to 11% for its bigger London sibling, and goes against the long-term trend.

Over the decades, the FTSE 100 has made average total returns of around 7% per year, while the FTSE 250 has been closer to 11%.

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It does look like UK investors have been averse to risk. But I think that’s changing, and I reckon the FTSE 250 might be hiding some explosive growth potential.

Telecoms growth

Telecom Plus (LSE: TEP) shares lost a couple of percent on results day on 18 June. And they’re way down from the highs they reached in 2022.

But the stock is still up 24% in the past five years. And I wonder if a new bull run might be on the cards.

Created with Highcharts 11.4.3Telecom Plus Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

The firm operates the Utility Warehouse brand… energy, phone, and broadband all in one. And forecasts show that combination generating growing earnings in the next few years.

We saw earnings per share (EPS) of 109p for the 2024 year, up 9.9% and ahead of forecasts. It looks like we might see 120p per share by 2026.

Growth valuation

And if that comes off, we could have a price-to-earnings (P/E) ratio of 15 by then. For a stock with growth potential, that could be cheap.

The stock’s past volatility does weigh against it, though, and it’s in a highly competitive market. The valuation, while it might be low for a growth stock, might look high compared to other utilities firms.

But it does seem like a very efficient operation to me, and I think that could set it ahead.

Biotech growth

PureTech Health (LSE: PRTC) has had a good 2024 so far. But its shares are way down from their 2021 heights, and down 8% in five years.

Created with Highcharts 11.4.3PureTech Health Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

PureTech helped found schizophrenia treatment business Karuna. Then Bristol-Myers Squibb bought it for $14bn, which means PureTech’s initial $18.5m investment generated more than $1bn.

With FY results released in April, CEO Bharatt Chowrira spoke of “our track record of clinical success, which is six times the industry average“.

This isn’t a stock to invest in lightly, and I’d need to dig into specific sector risks before I’d consider it. And the lack of regular profits from the firm’s business model is a concern.

Fallen growth

I also look at stocks like Ocado, a previous growth stock favourite. Have sellers pushed the price too low? I think they might.

It’s changed places with partner Marks & Spencer, being demoted to the FTSE 250 while M&S now has a FTSE 100 seat.

The lack of profit is the big problem. But when we see profit on the horizon, I think that might just spur a new growth spell.

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Alan Oscroft 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.

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