£1k to invest? I’d buy this double-your-money FTSE 250 growth stock

These two stocks are heading in two different directions and I would only buy one of them today.

| More on:

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s nice when your stock tips pan out. Last May, I spoke glowingly about IWG (LSE: IWG), which provides serviced offices, virtual offices, meeting rooms, and videoconferencing to clients, and its stock is up a third since then, from 337p to 446p. Over 12 months, the IWG share price has almost doubled in value.

Global growth

The FTSE 250-listed company has come a long way since issuing a profit warning in 2017, and is growing rapidly in the Americas, Asia Pacific, France, Germany and Spain, although UK revenues did temporarily slip due to network rationalisation.

The £3.9bn group’s Q3 statement in November hailed “continuing strong revenue growth, excellent franchising and enterprise account momentum”. It added another 66 new locations in the quarter, taking its worldwide total to 3,348, while revenues grew 15.5% across all its centres, with strong performance in every region, including the UK this time.

Cash is flowing, it has launched a share repurchase programme, spending £22.4m in the quarter, and cut net debt further to £301.2m, putting it in a strong financial position.

After striking master franchise agreements in Japan, Taiwan and Switzerland, IWG now boasts 27 franchise partners across 22 countries. Its strong pipeline of global franchising opportunities suggests scope for further growth.

The only obvious downside I can see is that the stock trades at 35 times forward earnings, which makes it a little expensive. That means it must continue to grow rapidly to keep investors happy and the share price bubbling along. However, with earnings forecast to rise 17% this year, and 19% next, IWG still appears to have momentum on its side.

Not so hot

By contrast, education specialist Pearson Group (LSE: PSON) has endured another dismal year, and is in danger of losing its place in the FTSE 100. The stock is down 37% over the last year, and 57% measured over five years.

Last September, a profit warning sent the Pearson share price crashing 15% in a day. That came as it continued to suffer problems in its US educational business, as the shift from print to e-books hit sales, and the internet broke down barriers for entry, allowing more nimble competitors to take market share. So far, the group hasn’t come up with an answer.

Pearson has been restructuring in response, but its latest update shows educational revenue down 12%, although it is growing other areas, such as Online Program Management, Professional Certification materials, and the Pearson Test of English Academic.

I was surprised to see the group preparing a £350m share buyback. This may reward investors, but I’m a bit old-fashioned, and prefer to see companies reinvesting that kind of money back into the business, to build growth.

City analysts expect earnings to fall 19% this year and 2% next, which hardly bucks me up. You do get a yield of 3.5%, though, covered 2.5 times, while its valuation of 12.3 times forecast earnings will tempt bargain seekers. Pearson might pull it off, but I’m not rushing to buy it at the moment.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Pearson. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »