While it’s the blue-chip FTSE 100 index that tends to receive all the media attention, you shouldn’t ignore its little brother, the FTSE 250. The reason is this index, which contains the largest 250 stocks outside the FTSE 100, is home to some really exciting companies that have strong growth prospects.
With that in mind, here’s a look at two of my favourite FTSE 250 stocks.
Workspace Group (LSE: WKP) is a niche property company specialising in providing co-sharing office space for early-stage companies in London. It currently owns over 60 properties in the Capital, serving over 3,000 smaller companies.
What I like about WKP is it’s uniquely positioned to capitalise on London’s start-up boom. Despite Brexit uncertainty, the start-up scene here is absolutely thriving right now (last year nearly 220,000 businesses were registered in the Capital) and this is creating a strong demand for flexible office space solutions. Just last week, Workspace advised that during the first half of its financial year, lettings averaged 127 per month, up from 92 last year, while enquiries averaged 1,109 per month, up from 1,020 last year.
WKP shares have had a good run over the last three months, rising nearly 40%. As a result, the stock doesn’t offer the same kind of value it did a few months ago. Currently, the forward P/E is 24.6 compared to 19 when I covered the stock in June. Given the higher valuation, I think it could be worth waiting for a pullback if you’re interested in buying the shares.
Another FTSE 250 stock I hold in high regard is Softcat (LSE: SCT). It’s a technology company that specialises in providing IT solutions (cloud, networking, security, etc.) to corporate and public organisations.
The reason I like Softcat is it operates in a high-growth industry. If you’re running a business today you simply can’t afford to ignore IT. You need to store your documents in the cloud, protect your information from cybercriminals, and analyse your data to make better decisions. Yet many businesses across the UK are still using out-of-date technology which is limiting their progress. As such, I expect demand for Softcat’s IT solutions to remain robust in the years ahead.
I also like the fact Softcat is one of the fastest-growing companies in the FTSE 250. Last year, revenue grew by 24% and, looking ahead, analysts expect top-line growth of 21% this year. If it can keep growing at that speed, it won’t be long before the company outgrows the FTSE 250 and joins the illustrious FTSE 100.
Softcat shares have had an incredible run so far this month, rising over 25%. This means that, like Workspace, they don’t offer as much value as they did in the recent past. Currently, the forward-looking P/E is 32.3. That’s not an outrageous valuation in my view given the company’s growth.
However, with a little patience, I think you may be able to pick up the stock at a lower valuation in the near future. I say buy on the dips.
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Edward Sheldon owns shares in Softcat. The Motley Fool UK has recommended Softcat. 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.