One thing I like about the FTSE 250 is that there is so much variety. With so many companies, industries, and market movers available, opportunities abound.
Now, I don’t currently have exposure to Kier Group (LSE: KIE). The stock has been on a roll of late and it’s share price has been rocketing higher in 2025. I’m considering buying some shares in the FTSE 250 stock as I like the business, but there’s a reason why I don’t want to buy just yet.
Strong trading update
Kier is a UK-based construction and infrastructure services group. It’s behind everything from major road-building projects to social housing and public-sector infrastructure. At one point it was even the UK’s second-largest UK construction contractor.
Its shares have surged 40% higher in the last six months to £2.12 as I write on 13 August. In its recent full-year 2025 trading update, management reiterated revenue and profit guidance while announcing strong free cash flow generation.
A robust order book of £11bn at year end, with 88% of FY26 revenue secured, was another highlight from the announcement.
Construction is a notoriously cyclical sector. Long-term shareholders are well aware of this, having seen Kier come under severe financial pressure in 2018 and 2019 after a failed share rights issue.
However, management’s efforts to restructure and reduce debt, cut costs, and dispose of its Kier Living housebuilding arm have proven fruitful. Testament to this is the reinstatement of the company’s dividend in 2024, with the stock now yielding 2.6%.
Why I’m not buying yet
This cyclical exposure is certainly a big factor that I’m weighing up before making a decision on whether to buy Kier shares or not. The company continues to win new work in its core markets which are underpinned by UK infrastructure spending.
I like that a significant portion of its pipeline is government-backed which provides me with some comfort even if we see a private sector slowdown.
Its balance sheet has also improved significantly since the pandemic years, with net debt brought down and margins edging higher.
That said, long-term investors need to look through the economic cycle. Profitability can be heavily impacted by delays, cost inflation, and changes in the political environment.
Valuation
I think Kier is in much better financial shape than it has been for quite some time. However, with a price-to-earnings (P/E) ratio of 22.6 as I write, it isn’t cheap. For context, the FTSE 250 average P/E ratio is 13.8 and is diversified across various sectors, which has its benefits.
I’m not sure I can justify buying into a cyclical stock with the current state of the economy. Despite its strong government contract pipeline, I think things can evolve quickly and we’ve seen UK infrastructure face difficulties including the water sector of late.
Key takeaways
All in all, I think Kier is a great business that has come a long way since the dark days of 2018 and 2019. As a long-term investor, I think entry price matters.
I can’t justify buying just yet given its cyclical exposure and the current state of the economy. If I see the company’s P/E ratio fall back into the mid-teens then I’ll be looking to snap up some shares and get exposure.
