Is the latest addition to the FTSE 250 a no-brainer buy?

This Fool considers whether the FTSE 250’s latest addition after the recent reshuffle is an opportunity for her holdings, or one to avoid.

| 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.

I’m still sifting through the FTSE’s quarterly reshuffle, and find myself drawn to the latest addition to the FTSE 250, Alpha Group International (LSE: ALPH).

Should I buy or avoid the shares? Let’s take a closer look.

Welcome to the big leagues!

First floated on the FTSE AIM back in 2017 – and initially known as Alpha FX – the business offers fintech solutions to corporations. These solutions help with FX risk management, cash management, mass payments, and more.

It’s no surprise to me that Alpha shares are moving up the ladder, especially when I can see how well the business has done. Over a five-year period, the shares are up 195% from 745p five years ago, to current levels of 2,200p. Coming up to date, the shares are up a modest 4% over a 12-month period from 2,110p at this time last year, to current levels.

To buy or not to buy?

The share price doing so well has been due to impressive growth and performance, which are some of the current draws for me to buy some shares personally.

Alpha has managed to widen its presence across 50 countries globally, and boost profit levels. In fact, its profitability levels are quite remarkable, if you ask me. Between 2018 and 2023, the firm’s return on capital employed (ROCE) hit the 26% mark. Plus, the business has a healthy looking balance sheet right now, after such a good period.

Next, Alpha shares offer a dividend yield of 0.72%. I know what you’re thinking, that’s not going to do much for my passive income stream. However, I’m buoyed by the firm’s dividend growth record, as well as the fact it’s currently undertaking share buybacks too. If Alpha can continue its impressive growth, I can see returns growing nicely. It is worth mentioning that dividends are never guaranteed.

So far, so good, the signs are all positive. However, it would be remiss of me not to mention potential pitfalls. To start with, the current valuation of Alpha shares is a risk. They trade on a lofty price-to-earnings ratio of 29. Any dent in earnings or a trading downturn could send the shares tumbling.

Furthermore, despite great success to date, competition in the sector is intense. Alpha may not yet possess the same brand recognition and financial might of some of its counterparts. This is something that could dent earnings, returns, and continued growth.

What I’m doing now

Based on the above, it’s not hard to understand Alpha’s promotion. In my view, it looks warranted.

From an investment perspective, I’d be willing to buy some shares when I next have some investable funds. Although the shares look a tad pricey, my mantra of being willing to pay a premium for a quality business comes into play here. The old adage ‘you get what you pay for’ comes to mind.

I wouldn’t be surprised to see Alpha’s continued success, and will be watching closely. Heading into the FTSE 250 today, maybe the UK’s premier index next?

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 recommended Alpha Group International. 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

£10k in an ISA? Here’s how I’d aim to generate a ton of passive income

I dream of escaping the shackles of a salary with financial independence and a steady stream of passive income. Here’s…

Read more »

Investing Articles

Are Burberry shares a bargain or a value trap?

Appearances can be misleading in the stock market. Shares that look like a bargain can turn out to be a…

Read more »

Investing Articles

How I’d target £17,673 passive income with just £100 a week

Our Foolish writer explains how he’d build a portfolio capable of generating a life-changing passive income with limited capital.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

If I’d put £20k into a FTSE All-Share tracker fund 10 years ago, here’s what I’d have now

A lot of UK investors have money in FTSE All-Share tracker funds. Here, Edward Sheldon looks at how these products…

Read more »

Investing Articles

How I’d invest £10k in a SIPP to target £28,000 annual passive income

Investing just £10k today in a SIPP could be the key to a chunky retirement income in the long run.…

Read more »

Investing Articles

How I could earn a second income worth £35,000

Millions of us invest for a second income. Our writer explains how he's making it work and shares tips for…

Read more »

Investing Articles

3 ways Labour could impact the Rolls-Royce share price

Labour have swept to power on a pro-worker, pro-business ticket. But how could the new government influence the Rolls-Royce share…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

No savings at 35? I’d use Warren Buffett’s method to try and build massive wealth

Warren Buffett made most of his multi-billion-dollar fortune after turning 50. So what was his trick to building enormous wealth…

Read more »