In the past couple of months, the FTSE 250 has started to climb while the FTSE 100 has stayed pretty much flat.
Is the mid-cap index ready for another spell of beating the top-drawer stocks? Forecasts show some big earnings rises across the index.
Baked-in success
Greggs (LSE: GRG) shares are up by 40% in the past five years, climbing nicely ahead of the FTSE 250. And they just got an extra 5% boost (at least at the time of writing) from H1 results released on Tuesday (30 July).
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The latest figures show a 14% rise in sales, with profit before tax up 16%, but that’s not what I’m looking at today.
No, I’ve been poking around broker forecasts. They show a slight fall in earnings per share (EPS) for Greggs for the 2024 full year. But the company has just posted a 15% rise in the first half.
That is an underlying diluted figure and it excludes exceptionals. But it suggests that forecasts might just be underplaying things a little.
Earnings jump
The City pundits already think Greggs’ EPS will jump another 20% between 2024 and 2026. And I wonder if they might lift that when they digest these H1 numbers.
My main fear for this stock is that the expected earnings growth might already be factored into the share price.
Prior to Tuesday’s update, the shares were trading at 22 times forward earnings. And that price-to-earnings (P/E) multiple would still be over 18 based on 2026 expectations.
Is that a bit too high right now? I’m wary. But it might be fine if those strong earnings forecasts can continue.
Banking growth
My next pick has no problems with a high P/E at all. It’s Bank of Georgia Group (LSE: BGEO), and we’re looking at a ratio here of only 3.8. And that’s even after the share price has more than trebled over five years.
There’s a 5.2% dividend yield forecast too, which is about in line with our own high street banks. But that low P/E is less than half what we’d have to pay for a UK domestic bank.
So does that make Bank of Georgia shares screaming cheap now? Well, maybe not if there’s more than twice the risk.
Risky location?
The bank is based in Tbilisi, Georgia, and has business in Armenia and Belarus. So I suspect not quite the same tight oversight was we have from UK bank regulations. And maybe that extra risk really is there.
But then I look at the forecasts. They suggest EPS could grow by nearly 50% between 2023 and 2026. That would drop the already low P/E even lower.
Oh, and it looks like the dividend could grow by 28% in the same timescale, so it could beat the UK banks.
Whether this turns out to be a good buy will surely depend largely on the future of the Georgian economy. And I haven’t a clue how that looks. But with these forecasts, I want to dig deeper.
