Much like right now, at the start of 2024 most investors were excited for the year to come. There’s always so much potential in January, with analysts putting out their views for what could happen. Fast forward to today, and if an investor had put £5k in one particular FTSE 250 share last January, they’d be sitting on a tidy unrealised gain right now.
And the winner is…
I’m talking about Metro Bank (LSE:MTRO). The FTSE 250 constituent would have been the best place in the index to have invested over the space of the past year. The share price is up 152% over this period, beating the 121% move higher from CMC Markets into second place. That means that a £5k investment would currently be worth £12.6k! That’s pretty exceptional.
However, if anyone had made this pick last January, they would have needed Foolish thinking and lots of conviction to hold for the long term. This is because for the first half of last year, the trade would have been losing money. It wasn’t until July that the share price really started to jump. It’s a great example of being patient and understanding that if someone has a belief that a company could do well, being proven right isn’t an overnight thing.
The performance of Metro Bank also shines versus the broader FTSE 250. Over the same time period, the index is up 8.7%. Although not always the case, an investor who’s researched their own ideas can often find a higher rate of return than simply being passive and putting money in a tracker fund instead. Granted, this can sometimes work the other way, with a stock losing more in value than the index.
Reasons for the move
The major spark that helped to kick off the rally in Metro Bank last summer was the selling of a £2.5bn portfolio of prime UK residential mortgages to NatWest Group. This was a strategic move, which was designed to enhance the bank’s balance sheet and focus on other areas of the business that could be more profitable.
From this point, financial results started to improve. The bank had reported a pre-tax loss of £33.5m for the first half of 2024. Yet in a trading update in November, the CEO commented that “the bank returned to profitability in October, in line with guidance, and thanks to our continued emphasis
on cost discipline and balance sheet management.”
This flip to being profitable, along with a positive outlook, was another factor that helped the stock to keep marching higher.
Action from here
An investor who didn’t buy last year might wonder if there’s any point considering to add the stock to a portfolio now. It’s true that the large jump in the past year could now result in some short-term moves lower as others take some profit. However, with a price-to-earnings ratio of 6.98, it’s still below the fair value benchmark ratio of 10 that some use so could be worth doing further research.
