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Have £1k to invest? I think the Sirius Minerals share price could beat the FTSE 250

The FTSE 250 has a track record of delivering capital growth. In the last 20 years, for example, the index has been able to generate an annualised total return of around 9%. As such, mid-cap shares could be worth a closer look.

Of course, some FTSE 250 shares have disappointed in recent months. Among them is Sirius Minerals (LSE: SXX), which trades at 19p, having been priced at 38p in August 2018. Alongside another mid-cap share which released a trading update on Tuesday, though, it could deliver index-beating returns over the long run.

Low valuation

The other company in question is transport services provider FirstGroup (LSE: FGP). Its winter trading update showed a rise in revenue at constant currency of 5.5% since the start of the financial year, and is on track to deliver on its current year forecasts.

Despite uncertain trading conditions, the company’s various operations generally performed well. For example, First Student revenue growth since the start of the financial year was 5.8%, while its First Transit revenue increased by 0.9%. Although there were challenges within its First Rail division, such as infrastructure difficulties and strike action, it was still able to post like-for-like revenue growth of 5%.

Looking ahead, FirstGroup is expected to record net profit growth of 6% in the current year, as well as next year. Its valuation suggests that there could be a margin of safety on offer, having a price-to-earnings (P/E) ratio of around 7. As such, after a volatile period for its share price as well as operational challenges, it could deliver FTSE 250-beating performance over the long run.

Recovery potential

As mentioned, it’s been a disappointing six-month period for the Sirius Minerals share price. The company’s market value has declined by around 50%, failing to be lifted any higher by the improved sentiment seen in the wider FTSE 250 since the start of 2019.

Of course, the nature of the company means that periods of high share price volatility are to be expected. It’s not due to start producing its fertiliser for another two years, and while it’s discussing its financing options with lenders it seems logical that investors may decide to adopt a more cautious stance regarding its outlook.

This stance has become increasingly downbeat in recent months though, as the potential cost of the project has risen. Given the size and scale, and the time it will take to complete, some delays and cost rises are perhaps not a major surprise. And while the company remains on track to deliver first production as per previous estimates, the next couple of years could be uncertain for the stock.

Still, with Sirius Minerals having encouraging long-term financial estimates, having enjoyed success in areas such as entering into contracts and progressing with the construction of its production facility, it could offer long-term recovery potential. While perhaps not a stock for less risk-averse investors, it could outperform the FTSE 250 over the coming years.

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Peter Stephens owns shares of Sirius Minerals. The Motley Fool UK has no position in any of the shares mentioned. 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.