The Motley Fool

One multibagging FTSE 250 stock I’d buy and one I’d sell

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Shares in 225-year-old retail stalwart WH Smith (LSE: SMWH) may have tripled in value in just five years but I remain cautious on the £2.3bn cap’s outlook, particularly after today’s full-year trading update. Here’s why.

When ‘good’ isn’t good enough

In the 12 months to the end of August, total revenue rose just 2% — hardly exceptional stuff. What’s more, most of this can be attributed to the 9% rise in sales from the firm’s Travel business. In sharp contrast, revenue from its high street division fell 5%, suggesting that even WH Smith can’t escape the problems that many of its peers are experiencing as more and more of us migrate to shop online and buy fewer newspapers and magazines.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

This kind of performance was largely replicated when it came to trading profits. These climbed 10% to £96m for the travel retail division (which now accounts for over 60% of overall profit) but remained flat — at £62m — for the High Street. 

Today’s numbers reflect my ongoing concern with WH Smith as an investment. While the company may explain the relatively uninspiring results from its high street store estate with reference to tough comparatives from the previous year, the fact remains that things aren’t going to get any easier going forward. Unless you are dealing with a captive audience (which is arguably why the travel stores are performing so well), what’s to stop patient shoppers from ‘road testing’ products in-store before returning home to buy them cheaper online?

Sure, a 10% rise in the final dividend, a proposed share buyback of up to £50m, and evidence of further progress overseas (including new store openings in Singapore and Rome), may be enough to convince many investors to remain. But I’m left questioning just how much positive upside is left in the shares, particularly if the uncertain economic environment makes consumers even more picky about where they spend their cash.

There’s also the valuation to think about. Trading at 19 times forecast earnings for the next financial year, a lot of good news appears already priced-in. Based on recent analyst estimates, the company’s price-to-earnings growth (PEG) ratio will also be around 2.7 for 2018/19, suggesting that the shares are no longer the deal they once were. 

Keep on rollin’

Sausage roll-on-the-go retailer and fellow multibagger Greggs (LSE:GRG) — while just as susceptible to competition on the high street as the aforementioned newsagent — could be a better buy in my opinion.

Its recent Q3 trading update was encouraging with the company recording an 8.6% rise in total sales for the 13 weeks to the end of September. Year-to-date growth in total sales now stands at a very respectable 7.8% with like-for-like sales increasing by just below 4%.

The £1.3bn cap baker has opened 98 new shops so far in 2017 and plans to grow this figure to 140-150 by the end of the year. Recent investment in a new “forecasting and replenishment system” has ensured greater product availability for customers and early-morning sales “continue to grow strongly“, according to the Newcastle-Upon-Tyne-based business. 

Going into the final quarter of its financial year, Greggs’ outlook also looks decent with previously flagged food ingredient cost pressures expected to ease as we approach the end of 2017.

Right now, you can grab a slice of the company for 20 times forecast earnings. With no online competitors to worry about, I still think that’s a price worth paying.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended WH Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.