The FTSE 250 is home to some great UK stocks with cracking growth prospects. Today, I’m looking at RS Group (LSE: RS1), which has seen earnings wobble a bit over the past few years. And that’s reflected in the recent share price performance.
But analysts are forecasting a return to growth. They predict we’ll see earnings per share climb 45% between 2025 and 2028. Oh, and they have an average short-term share price target of 695p penciled in. That’s 23% ahead of where we are at the time of writing.
So that’s a nice forecast combination of earnings growth and share price growth. Let’s dig deeper…
What it does
RS isn’t a name that’s likely to be on many people’s lips. That’s largely because it operates behind the scenes, supplying a wide range of industrial and electronics products and services. The company covers design, manufacturing and maintenance.
It’s the kind of company I expect to suffer some weakness during a general economic downturn. But with so many closely-connected business strands, I also see strong recovery potential when the outlook brightens.
At full-year results time earlier in 2025, chief executive Simon Pryce spoke of “a solid pipeline of acquisition opportunities to accelerate our strategy, supported by our strong balance sheet.” And that’s exactly the kind of thing I’m thinking of.
The company generated £349m in operational cash flow in the 2024-25 year, up 16%. And the year ended with net debt of only £364m. I see that as very healthy liquidity, with a net debt to adjusted EBITDA ratio of only 1.1.
What comes next
Markets are still tricky, and all the global tariff uncertainty doesn’t help. But RS has a medium-term target of “growing revenues at twice the market” average, with “over 80% cash conversion and over 20% return on capital employed“.
With brokers forecasting such strong earnings growth, we could see a price-to-earnings (P/E) ratio of around 12 by 2028. That ties in with a generally low P/E valuation for the overall mid-cap index at the moment.
And it suggests to me that we could be in for a spell of outperformance from the FTSE 250 in the next few years — it’s slipped back against the FTSE 100 in the past five years.
What’s the risk?
The biggest danger I see is the potential disruption to manufacturing supply chains kicked off by the US-led global trade wars. With so many companies changing their sourcing, manufacturing and distribution channels, we could be looking at a very different trade scenario over the next few years.
Economic changes have come thick and fast since those FY numbers delivered in May. First-half results for the current year are due on 6 November, and they could prove pivotal. I’m certainly very keen to see them.
Overall, what I’m seeing here is a FTSE 250 stock with tempting potential, coming out of a weak spell in a strong financial position. And there’s a 4% dividend yield on the cards for investors who want a bit of income. It’s definitely one I think growth investors should consider.
