MENU

2 FTSE 250 growth stocks I’d consider before the ISA deadline

Image source: Getty Images.

Today, JD Sports Fashion (LSE: JD) has announced that it has entered into a conditional acquisition agreement to acquire The Finish Line, Inc., one of the largest retailers of athletic footwear, apparel and accessories in the US for $558m. 

Even though retail is currently one of the market’s most disliked sectors, this deal looks to be an incredibly shrewd move on management’s part. Indeed, based on The Finish Line’s performance for the year to 25 February 2017, JD is paying around 10 times earnings for the company. Only two years ago, Finish Line was worth almost 100% more, so it looks as if JD has snapped up a bargain. 

The company believes that the deal “presents an excellent opportunity for JD to establish its market leading multi-brand proposition in the world’s largest athleisure market” as JD’s existing “marketing relationships with global brand partners ” helps the enlarged group fightback against sector headwinds. 

What’s the market missing? 

Overall, this looks to be a transformational deal for JD. Expanding across the pond is notoriously tricky, but buying an already established peer, at a desirable price, JD has de-risked its American adventure. What’s more, the enlarged group should be able to lock in better deals with suppliers meaning better prices for customers and hopefully, wider profit margins for shareholders. 

However, despite JD’s potential, shares in the group are currently only trading at a forward P/E of 15.1. Even without the deal, this looks cheap. Analysts are expecting earnings per share to jump 23% for 2018 and 9% in 2019, and over the past six years, earnings have grown at a compound annual rate of 25%.

In my view,  it is entirely likely that the company can repeat this growth performance over the next five years as JD accelerates its overseas expansion. 

The UK’s best company? 

Another FTSE 250 grow to stock that has recently attracted my attention is Rightmove (LSE: RMV)

Even though the vast majority of estate agents still conduct their business offline, online property portal Rightmove has become an essential tool for the property industry, and it doesn’t look as if this is going to change any time soon. 

As an entirely online business, with low capital spending requirements, which collects fees whenever a property is uploaded to its site, Rightmove is hugely profitable and to some degree immune to broader property market trends. Last year the company booked an operating profit margin of 73.3% and produced a return on capital employed — a measure of profitability for every £1 invested — of 1,020%. These returns make Rightmove one of the most profitable firms in the entire country. 

Management has decided to return the bulk of capital generated to investors via dividends and share buybacks. At the beginning of the year, the company announced a £23m buyback to complement its 1.5% dividend yield. 

A price worth paying? 

The only thing I don’t like about Rightmove is its valuation. The shares are currently trading at a forward P/E of 24, which looks expensive even when compared to projected earnings growth of 14% for 2018. However, considering that this is one of most profitable businesses in the UK, I believe the shares do deserve a high multiple.

All in all, if you are looking for a high-quality growth stock to add to your ISA, you can’t go wrong with Rightmove, in my view. 

You Really Could Make A Million

Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, "10 Steps To Making A Million In The Market".

The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide. There are no strings attached, simply click here for your free copy.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Rightmove. 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.