Few FTSE stocks have outperformed Rolls-Royce shares so far this year. As I type, the engineering titan has delivered a 66% gain to anyone who got involved as markets opened back up in January.
However, this return pales in comparison to what holders of a certain under-the-radar company have earned.
Incredible performance
Stop a stranger and ask whether they’ve heard of Rank Group (LSE: RNK) and they’ll probably give a blank expression. But they may be more familiar with some of its brands, such as Mecca Bingo and Grosvenor Casinos, even if they’ve never used them.
Now, I’ll be the first to admit that this space doesn’t get my pulse racing. Even so, I’m sure existing holders will be very happen at the recent price movement.
Shares in Rank Group currently stand 91% higher than where they started 2025. The gain’s even greater when tracked over the last 12 months (127%). To make things even more interesting, most of this uplift has only come in the last couple of months.
Strong tailwinds
At least some of this magnificent momentum’s down to improved trading.
In its most recent update, the firm said that like-for-like net gaming revenue had grown by 11% (to around £795m) in the 12 months to the end of June. This was in spite of “significant cost and regulatory headwinds” seen since the start of the final quarter.
As a result, management expects underlying operating profit to come in ahead of expectations.
The outlook’s encouraging too, thanks to land-based casino reforms coming into effect last week (22 July). In a nutshell, these are being introduced to help modernise physical sites, allowing them to complete with online-only platforms. Changes include allowing smaller casinos to operate more gaming machines per gaming table. Sports betting will also be permitted.
Long-term investors have suffered
Of course, there are still risks that come from being a mostly physical (rather than digital) business. Energy costs remain high and the company must also cope with rising wage bills.
Separately, it’s worth noting that Rank shares have performed poorly over a longer timeline. Those who invested five years ago would have seen their capital grow just 12% in value. Meanwhile, Rolls-Royce shares are up nearly…1000%!
To make matters worse, the £750m-cap company stopped distributing cash to holders in wake of the pandemic. These were only reinstated in FY24. Even today, the forecast dividend yield stands at just 1.4%. Granted, this is more than over at the FTSE 100 juggernaut.
And then there’s the question of fair value. The shares now change hands at a price-to-earnings (P/E) ratio of 18. This is significantly lower than Rolls-Royce whose P/E of 41 has arguably got a little silly.
However, they’re rather dear relative to other stocks in the Consumer Cyclicals space, suggesting a fair bit of good news is already priced in.
One for the watchlist
Taking all of the above into account, I’m tempted to add Rank Group to my portfolio today. But I would like to read its next set of results — due mid-August — before making a decision.
Regardless, this example shows that smaller-cap stocks have the potential to outperform our biggest and most popular businesses, especially if they’re snapped up when out of favour.
