I’m always on the hunt for undervalued stocks with long-term growth potential and right now, the FTSE 250‘s looking good. With big-cap Footsie stocks dominating the headlines this year, many mid-caps have been ignored for too long.
Major City bank UBS recently called out the potential in the FTSE 250, saying it’s “in the right place, at the right rate”.
If trade policies tighten under the new Trump administration, it could dampen performance on the more internationally traded FTSE 100. That could shift focus to our smaller, more locally-traded mid-cap index.
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Rate cuts could play a big role too. There appears to be a notable correlation between rate cuts and the UK market growth over the past five years.
Historically, UK stocks have enjoyed growth of up to 70% in the year following an initial rate cut. With the Bank of England expected to initiate further rate cuts in the coming year, that’s a promising statistic.
So with that in mind, here’s a FTSE 250 stock worth considering for growth in 2025.
Victrex
Victrex (LSE: VCT) manufactures polymer components for various industries, including energy and transport. It also has a biomedical arm, Invibio, that makes implantable materials to treat sports and age-related injuries.
Few people know the name but its materials are widely used in everyday products. It’s also one of few British producers of polyaryletherketones (PEEK), a market expected to grow at a rate of 6.1% over the next five years.
The road to recovery
Despite strong market dominance, it’s down 53% in the past five years. A weakened economy and supply chain issues have strangled revenue while ramping up expenses.
But a recovery now looks to be on the cards. The share price surged 20% earlier this week after it published a promising earnings report. This half it enjoyed 15% more volume than the first half of 2024, with a cash conversion of 114%.
It also achieved 1,000 tons of volume for the first quarter in several years.
Once again, it maintained a final dividend of 46.14p. The yield now stands at an attractive 5.4%. Dividends increased from 8.6p to almost 60p per share over the past 20 years.
It’s not completely in the clear yet though. Revenue still contracted 5.2% and adjusted pretax profit was down 26% since last year.
Medical destocking and a decrease in asset utilisation hurt the company’s profitability this year. These remain key risks that could continue to strangle profits going forward.
Earnings are also at risk from currency fluctuations, with the company anticipating a £7m-£8m hit in 2025.
But CFO Ian Melling said the company is “entering a period of significantly lower CapEx” having completed most of its key investments. This should improve cash flow going forward and could equate to higher shareholder returns.
Final thoughts
Following the positive result, major broker Jefferies put in a Buy rating for the stock on 4 December, helping to further legitimise its recovery.
Those who bought the dip last week will be celebrating the recent jump. Sadly, I missed out. But either way, I don’t have the spare cash to buy the stock right now.
Still, I’m keeping a close eye on it. If destocking tapers off and medical revenue improves, it could turn out to be a big winner next year.
