If I was to invest £1,000 in the UK stock market, I’d consider some of the promising stocks of the FTSE 250. One such company that’s recently caught my eye is Spirent Communications (LSE:SPT). This is a business involved in the UK’s much anticipated 5G rollout. The tech is getting set to rapidly advance the world as we know it, into (we hope) a technologically superior future. Spirent is an engineering company rolling out the infrastructure necessary for this revolution. I’m quite intrigued by the potential of 5G and the growth opportunities it presents.
Why invest in this FTSE 250 stock?
Spirent Communications was founded way back in 1936. As well as 5G, it’s also involved in cybersecurity. This is an increasingly vital cog in all businesses with an online presence. It provides cloud based automation and testing solutions for a variety of needs. It also creates simulators that allow reliable testing in the performance of autonomous vehicles.
These are disruptive areas of technology that are building momentum in our changing world. 5G is particularly exciting because its instantaneously high speeds could be game-changing for so many aspects of industry. For instance, 5G connections are super-fast and reliable. This should allow for seamless multi-person video calls, autonomous driving, augmented and virtual reality solutions. Plus, it should greatly enhance those artificial intelligence programs that need to operate in real-time.
Risk vs reward
There’s considerable competition in the 5G infrastructure sector. You see, BT, Virgin Media and Vodafone are all vying for similar contracts. It also comes with high costs and immense responsibility. Managing the data transfer of vital and often sensitive communications is a serious business.
Until October last year, Spirent Communications’ share price had been on an upward trajectory for the best part of half a decade. And up to today, its price has risen 216% over five years. It now has a £1.4bn market cap. And it has a forward price-to-earnings ratio (P/E) of 22, with earnings per share of 9p and a 1% dividend yield. Its full-year revenue grew 4% for 2020.
It seems the recent pullback in its share price may be due to a slowdown in revenues caused by the ongoing pandemic.
A long-term investment
When I’m looking to invest in the FTSE 250 or any other area of the market, I always think long term. That’s because it’s easy to become distracted by short-term fluctuations in the market, but I want to invest in companies that are going to be around far into the future.
Therefore, if I think about businesses that are offering a service and have a reason to be here for the long term, then I think it makes for a more appealing investment. I feel Spirent Communications ticks this box. My primary concern is that it may not have enough of the competitive edge that I’d like. I’ll have to keep an eye on that. But I do expect it to go the distance. And I’d be happy to invest £1,000 to buy shares in this FTSE 250 business today.
Kirsteen has no position in any of the shares mentioned. 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.