The FTSE 250 contains companies not big enough to make it into the FTSE 100. Often that is because they are still in a growth phase. That is why I find it a rewarding place to look for share ideas. Here are two FTSE 250 shares I’d pick for growth now.
Self-storage has been big business for decades in the US. From people looking to store furniture when they move to startup businesses needing simple warehousing, demand has continued to move upwards.
UK demand is far below that seen in the US, but is also growing. As the concept of self-storage becomes more entrenched in the British market, I expect demand to keep increasing. There are a number of companies in this space I find attractive, including Safestore (LSE: SAFE).
Safestore has done a good job building a portfolio of properties with attractive locations in cities. That makes them easily accessible to a large number of potential customers. Revenue has been steadily increasing for many years. In 2020, this FTSE 250 member climbed 7%. In a year beset by pandemic, that sort of steady growth is what I have come to expect of the company. Storage habits can change, though, so demand isn’t necessarily going to keep rising.
Once one’s goods are in storage, moving them is a hassle. So companies like Safestore have pricing power. The average storage rate in its first-quarter results announced last week was 1.5% higher than last year. That allows attractive profit margins. Earnings per share last year were 84.6p, easily covering the dividend of 18.6p. But if more players enter the market, pricing competition could reduce profitability.
With a price-to-earnings ratio of 29, the shares do not look cheap to me. However, for a long-term buy and hold option, I would still pick Safestore in the hope of future growth.
A FTSE 250 growth pick I find tasty
Another FTSE 250 name I would pick for growth is Domino’s Pizza (LSE: DOM).
The well-known pizza brand has seen demand for takeout food increase during lockdowns. But growth is not just driven by the pandemic. The store count has been increasing, with around 1,200 stores meaning the company now has its highest ever number of outlets in the UK. Pulling back from challenging Continental European markets will allow the company to double down on its success in the UK, in my opinion.
In the US, Domino’s has saturated some areas with its “fortressing” strategy. This involves building strength in key areas by opening lots of stores close together. I expect it will do something similar long term in the UK. In that case, despite its existing store count, there is a lot more room for growth. Some centralized functions are shared, so the more shops Domino’s opens, the higher the productivity of such pooled assets.
Takeout pizza isn’t affordable for a lot of people, and in an increasingly health conscious environment demand could also be hit. So while I see potential growth in Domino’s, it might not happen.
The shares yield 1.3%. I would be happy to receive that but what attracts me more to this FTSE 250 pick is the growth story.
christopherruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Dominos Pizza. 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.