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

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Some FTSE 250 stocks have struggled in the coronavirus crisis. However, others have thrived. There’s one company, in particular, that’s seen business explode over the past few months.

FTSE 250 growth champion

Online trading platform Plus500 (LSE: PLUS) has benefited from the market volatility we’ve seen in 2020. Its latest update shows total group revenue for the first half of 2020 was $564.2m, that’s compared to just $148m in the same period last year.

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A record number of new customers signing onto the platform also helped the group achieve a record number of active customers. Some 198,176 new customers were onboarded during the first half of 2020, that’s three times higher than the same period last year.

These numbers suggest the FTSE 250 growth champion is in for a bumper 2020. Analysts have been raising their forecasts for growth for the group over the past few weeks. They now expect Plus to report earnings growth of nearly 90% in 2020. These figures don’t include today’s trading update. So I wouldn’t rule out an upward revision to this growth projection over the next few weeks.

Nevertheless, based on this growth forecast, the stock is trading at a forward price-to-earnings (P/E) multiple of just 6.6. That’s compared to the financial services sector average of 15.

Therefore, the stock would appear to offer a wide margin of safety at current levels. As such, now could be an excellent opportunity to snap up a share at a discounted valuation.

Micro Focus

While I’m a buyer of FTSE 250 growth champions Plus, I think it may be best to sell struggling former tech star Micro Focus (LSE: MCRO).

Several years ago, the company bit off more than it could chew when it acquired HP’s Enterprise division. This business has been a thorn in the group’s side ever since.

In its latest update, Micro Focus announced yet another round of losses linked to the deal. Earlier this year, it also lost its legendary CEO Kevin Loosemore, who left after 15 years of building the business.

While management continues to believe the company has bright prospects, I’m not so sure. The FTSE 250 tech stock has been struggling to turn itself around for years. So far, there’s been little success.

At the same time, shareholders have had to deal with a dwindling share price. The stock is down around 60% since the beginning of the year. What’s more, management has also been forced to severely curtail shareholder payouts, which has significantly impacted total returns.

As it looks as if the business may continue to struggle for some time, it might be best to avoid the stock for the time being. Even though it seems cheap after recent declines, there’s no guarantee the FTSE 250 investment will be able to return to growth any time soon.

Investors could be better off buying proven growth champions such as Plus instead.

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

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