When looking at UK shares for my portfolio, I have identified one FTSE 250 growth stock I currently like. Should I buy shares for my portfolio?
FTSE 250 growth stock
The need for tech has accelerated recently, especially since the pandemic struck. Businesses needed to transform to help facilitate remote working and changing consumer habits.
Kainos (LSE:KNOS) is a software company that specialises in helping businesses transform digitally in a cost effective and efficient manner. With a workforce of over 2,000 people and operating in 23 countries, it is a global firm with vast reach.
At the time of writing, shares were trading for 1,703p per share. At the same point last year, shares were trading for 1,100p which is a 54% difference. Just prior to the crash, Kainos’ shares were trading for 842p per share. Although they dipped, as most UK shares did at the time of the crash, the share price has continued to rise since then.
In Kainos’ most recent full-year results announced in May for the year ended 31 March 2021, its revenue increased by 31% and statutory profit before tax increased 117%. Cash increased by 98%. No doubt this contributed to its dividend increasing to 28.2p per share, up from 3.5p last year. This is a 706% increase! I can’t recall many UK shares increasing a dividend by such a margin in recent times.
Kainos has a solid track record of performance. Reviewing past performance, I see that revenue, gross profit and operating income have all increased year-on-year for the past four years. I know that past performance is not a guarantee of future success. I still refer to it when reviewing UK shares for investment viability for my portfolio.
Another aspect I like about Kainos is that it is regularly in the market to acquire businesses that will enhance its offering. I am always buoyed when any firm I am considering is completing acquisitions as I see it as showing plans for growth. Its most recent acquisition was announced on 1 June. Kainos bought Finnish company Cloudator’s Workday division to add to its own Workday offering.
UK shares have risks
The main risk I associate with Kainos shares is that I consider them to be priced quite high at the moment. They are priced at a forward price-to-earnings ratio of over 40. The problem here is that any slowdown in growth or negative news could knock its share price and it would fall sharply in my opinion.
In addition to the valuation, the fact that the Kainos share price is trading at all time highs makes me wonder if it could go any higher? I believe it can but there is always the risk it has reached its peak.
Overall I do think Kainos is the type of UK share I would seriously consider adding to my portfolio. It has shown excellent growth and is primed to continue that trajectory with the current tech boom in my opinion.
Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Kainos. 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.