However, after screening the FTSE 100 index for stocks that are generating revenue growth, paying a dividend, and trading at a reasonable P/E ratio, I’ve found one stock that ticks all three boxes. If you’re looking for shares to buy right now, I’d check this company out.

This FTSE 100 stock flies under the radar

The FTSE 100 company I’m talking about Hikma Pharmaceuticals (LSE: HIK). An under-the-radar healthcare company, Hikma is focused on developing, manufacturing, and marketing branded and non-branded generic medicines. Every day, its products are used by approximately 13m people across the world.

Impressive growth

Hikma is growing at an impressive rate. Over the last five years, revenue has climbed from $1,489m to $2,203m – an increase of 48%. And looking ahead, City analysts expect the company to continue growing. Currently, analysts expect top-line growth of 4.4% this year and 5.4% next year.

It’s worth pointing out that, so far, Covid-19 seems to have had little impact on the company. In late February, the group advised that it wasn’t anticipating any material impact from the outbreak. More recently, on 30 April, the company said that it had made a “strong start to the year” and that it was reiterating its full-year guidance for 2020.

Still paying dividends

Moving on to dividends, Hikma is a reliable dividend payer that has now notched up eight consecutive increases. The payout has been growing at a fantastic rate too. Over the last five years, it has increased from 22 cents per share to 44 cents per share. The FY2019 payout of 44 cents per share equates to a yield of around 1.4% at the current share price. Not the highest yield in the FTSE, sure, but a higher rate than you’ll get on a savings account right now. 

Importantly, Hikma is continuing to pay its dividend in the current environment. Yesterday, it paid shareholders the final FY2019 dividend of 30 cents per share. The company said that its ability to keep paying dividends demonstrates the strength of its balance sheet and its confidence in its ability to maintain strong cash generation and low leverage.

Cheaper than the largest FTSE 100 health stock

Given its growth and dividend track record, you would think that Hikma would trade at a high valuation. Yet that’s not the case. Currently, the forward-looking P/E ratio is a reasonable 19.8. By contrast, the largest healthcare stock in the FTSE 100, AstraZeneca, currently has a forward P/E ratio of 27.8. I think Hikma’s current valuation is attractive.

I’m not the only one who thinks Hikma has appeal right now. Of the 13 brokers covering HIK, 10 rate the stock as a ‘buy’ or ‘strong buy.’

A lot to like

All things considered, I think there’s a lot to like about Hikma. The FTSE 100 company looks attractive from a growth perspective, but at the same time, it also has defensive attributes. People still need medicine in an economic downturn. The dividend payout adds weight to the investment case.

At its current price, I see the stock as a ‘buy.’

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals. 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.

Two of the best performers of recent years are defying the downturn and have continued to grow over the last month. Now could be a good time to check out the Hikma Pharmaceuticals (LSE: HIK) and Rentokil Initial (LSE: RTO) share prices, which are staying afloat, as almost every other company sinks along with the market.

Pharmaceutical stocks tend to hold their own when stock markets are falling, because people continue to fall ill in a recession, often more than before. 

Hikma Pharmaceuticals

This is particularly true now, as markets fall due to the coronavirus global health scare. Hikma stock is up around 5% over the last week, at time of writing. Over two years, it’s up 124%.

Hikma was given a timely lift by a positive set of preliminaries last week, which showed group core revenue up 6%, with group operating profit surging 33% to $493m. It also strengthened its balance sheet by trimming net debt to $242m, while raising his full-year dividend more than 15% to 44 cents per share.

Many investors overlook Hikma as they target pharma big guns AstraZeneca and GlaxoSmithKline. But this £4.72bn stock has huge growth potential, launching 108 new products across all its global markets last year, and signing 18 licensing agreements for the US and MENA. Its flowing pipeline should help drive future revenues.

Hikma shares should also benefit from its recent blockbuster agreement with Glenmark Pharmaceuticals. Some pharmaceutical stocks have soared on speculation about developing new coronavirus treatments, leaving them overbought.

But that isn’t the driver here. Hikma is just a very good company on a roll. Yet it trades at a modest valuation of 14.5 times forward earnings, while its 1.8% yield is covered 3.7 times by earnings, giving plenty of scope for growth. I’d buy it for the long-term.

Rentokil Initial

Rentokil Initial is also up around 5% over the past week, and a bumper 100% over two years, during which time the FTSE 100 as a whole actually fell 7.5%.

The £9.59bn group is a direct beneficiary of current worries because, along with its renowned pest control services, it also supplies hand washing and hand sanitising services. Again though, this is far from a pure coronavirus play. Last week, the Rentokil share price flew as it posted a 10% increase in adjusted pre-tax profits to £341m, with organic revenue growth of 4% — its highest level in 15 years.

This is a global business, and is performing strongly in its Pacific business region, as countries urbanise and pest control becomes more important, as well as in the UK and Europe.

The big concern is that, after recent share price success, Rentokil stock looks pricey. It trades at 31.8 times forecast earnings, while the yield is relatively low at 1.4%, despite progressive management that recently hiked payouts by 15.2%.

I’d prefer a more reasonable valuation, but this stock is in demand right now.

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

In this article I’m going to look at a stock that’s just fallen out of the FTSE 100 and rejoined the FTSE 250 mid-cap index.  I think this well-established company has the potential to get much bigger. I’m also going to consider a small company that’s impressed me with its profitability and growth, but could suffer during a UK recession. Is now the right time to buy?

A dividend growth star?

The share price of FTSE 250 firm Hikma Pharmaceuticals (LSE: HIK) has risen by more than 250% over the last 10 years. Although the firm is currently going through a period of slower growth, I believe this business enjoys strong fundamentals that should make it an attractive long-term investment.

Hikma’s specialism is generic medicines. These are cheaper alternatives to branded products whose patent protection has expired. The market for generics is very large and important, as many treatments remain essentially unchanged for decades.

Making such medicines available more cheaply is attractive to large purchasers such as the NHS. It also helps to open up new sales opportunities in emerging markets. This is a key area of strength for Hikma, which operates in the Middle East and North Africa, as well as the US and Europe.

I’m attracted to Hikma’s strong record of cash generation and low debt levels. In contrast to larger rivals AstraZeneca and GlaxoSmithKline, Hikma’s dividend is covered more than three times by earnings and looks very safe to me.

Indeed, since the firm’s first dividend payment in 2006, the payout has been held or increased every year. Last year’s payout of $0.38 per share was a 1,700% increase on the firm’s maiden dividend in 2006.

The shares have fallen back a little this year. They now trade on about 14 times forecast earnings, with a 1.9% dividend yield. I believe this could be a good entry point for long-term investors.

Motoring ahead

Another overlooked dividend growth stock I’m keen on is used car supermarket chain Motorpoint Group (LSE: MOTR). This firm is the UK’s largest independent used car specialist, with a network of 12 car supermarkets. Motorpoint only sells cars under three years old and with less than 25,000 miles on the clock.

I’ve been impressed by Motorpoint’s performance since its flotation in 2016. Customers seem to like it too — 30% of sales are to repeat customers.

Although growth slowed last year, sales topped £1bn for the first time and adjusted pre-tax profit rose by 10% to £22.9m. Cash generation remains excellent, thanks to the group’s low costs and financial discipline.

In my view, this is a very well-run and focused business. The main risk I can see is that profits are very sensitive to small changes in sales. When sales are rising, this is good news. But my sums suggest that a 5% fall in sales could cause operating profit to fall by as much as 15%.

Trading on 11 times forecast earnings and with a 3.5% yield, the shares don’t look expensive. But I’d only consider buying this stock if you’re confident about the outlook for the UK economy. Personally, I’d rate Motorpoint as a hold for now.

The post An overlooked ex-FTSE 100 dividend stock I’d buy and hold forever appeared first on The Motley Fool UK.

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Roland Head owns shares of GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca, GlaxoSmithKline, Hikma Pharmaceuticals, and Motorpoint. 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.

Struggling to rebuild earnings

The situation has hit profits and cash flows hard for the major pharmaceutical companies, and they’re almost all struggling to rebuild earnings and growth by commercialising new formulations from their development pipelines, or by buying up smaller drug research and development outfits.

However, I like the generally cash-generating, defensive characteristics of the sector, which is fuelled by constant and predictable demand from customers needing medicines. So I’m still keen on the big pharmaceutical companies and their often quite large dividend yields.

However, I’m also keen to have a foot in the competition that has been causing the larger pharmaceutical firms so much financial pain, which is why I like FTSE 100 company Hikma Pharmaceuticals (LSE: HIK).

The company produces what it describes as “a broad range of branded and non-branded generic medicines,” which makes it one of big pharma’s antagonists!

The dividend has risen around 90% over the past five years and, with the share price close to 1,756p, the dividend yield runs close to 1.7%. That seems quite low, but earnings cover the payment around three and a half times, which suggests to me that the directors see plenty of opportunities to invest in growth going forward. Otherwise, they would probably pay more of the firm’s cash out in the dividend.

A positive update

Today’s trading update is positive. Chief executive Siggi Olafson said in the report the firm experienced “strong” growth in revenue and profitability last year. 2019 “is off to a good start.” The three divisions of Injectables, Generics and Branded are all making decent progress driven by a “broad product portfolio and recent product launches.”

I think the update is encouraging, but I’d be the first to admit the company’s record of trading has been a bit patchy at times, as you can see from this table:

Revenue has risen steadily, suggesting there has been no problem with sales. However, operating cash flow and earnings have been volatile, which could indicate the firm has had trouble squeezing profits from its operations.

Nevertheless, the directors kept the dividend growing over the past five years or so and things seem to be on track now. Today’s report talks about how the firm has been working hard to control costs. So it could be that inefficiencies crept into operations causing the profit wobbles of recent years, which is a challenge that most growing businesses face.

We’ll find out more from Hikma with the interim results for the six months to 30 June, due on 9 August.  

The post Why I’d snap up this FTSE 100 pharmaceutical provider alongside GlaxoSmithKline appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca and Hikma Pharmaceuticals. 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.

Pharmaceuticals

Hikma Pharmaceuticals (LSE: HIK) develops manufactures and markets branded, generic and in-license pharmaceutical products. The share price has been volatile over the past few years but the dividend is around 90% higher than it was five years ago.

Chief executive Siggi Olafsson was appointed at the beginning of 2018 and said in last month’s full-year results report that during the year revenue and profits were “significantly ahead” of the directors’ expectations, which I find encouraging. New blood at the top of a company is also something I see as a positive because it can usher in renewed management vigour and determination.

Around 62% of revenue came from the US, 32% from the Middle East and North Africa with the rest from around the world. So, the American market is important to the company. The injectables business delivered 40% of overall revenue with 33% coming from generics, 26% from branded products and the rest from other lines. The outlook is positive.

Broadcasting

ITV (LSE: ITV) is an integrated producer and broadcaster, which creates, owns and distributes content for multiple platforms. The firm operates a commercial family of channels in the UK delivering content through television broadcasting and on multiple platforms, such as the ITV Hub, pay platforms and via direct content deals. There’s also a studios segment producing content covering travel, drama, entertainment and factual formats.

The share price has been weak since the end of 2015 and the valuation looks compelling, including a high dividend yield. The dividend has risen around 130% over the past five years.

Meanwhile, in February’s full-year results report, chief executive Carolyn McCall warned that advertising income would likely be under pressure through 2019 because of “economic and political headwinds.”

However, the firm is repositioning the ITV brand, developing its data and digital capabilities, increasing its ability to offer addressable advertising and expanding its direct-to-consumer activities.  Such initiatives could see the firm through any further difficulties. I think the stock is tempting.

Business software

The Sage Group (LSE: SGE) provides integrated accounting, payroll and payments solutions to all types of companies and organisations. Over the past five years, the share price has risen around 75% and the dividend by about 46%. In an update in January, chief executive Steve Hare said 2019 started well, which he puts down to the firm’s “renewed focus” on high-quality subscription and recurring revenue.

During the trading year to September 2018, 54% of overall revenue came from Europe, 31% from North America and the rest from other regions. I’ve always liked the company because its products seem to be everywhere and used by businesses large and small. I think that once a firm adopts the Sage solution, switching costs and inconvenience are high, so many tend to stick with the firm, leading to generally stable inflows of cash for it.

However, the appeal of Sage hasn’t gone unnoticed and the valuation looks full. But I think the business is a quality outfit and deserves its rating.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals, ITV, and Sage Group. 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.

A future-proof business?

Oil and mining companies have come in for a lot of criticism recently, due to the environmental impact of their activities. But I think there are still some attractive long-term opportunities in this sector.

For example, while the market for coal will (hopefully) start to shrink in my lifetime, I expect demand for copper to continue to increase. In an increasingly electrified world, demand for copper seems likely to continue growing.

That’s certainly the view of Iván Arriagada, chief executive of FTSE 100 copper miner Antofagasta (LSE: ANTO). On Tuesday Mr Arriagada said that he expects “the fundamentals of the copper market will remain positive” in 2019. He believes “the supply deficit will increase” during the year.

If Mr Arriagada is right, then copper prices could rise further this year as demand falls short of supply.

Strong numbers

Chilean firm Antofagasta could be a big winner if that happens. Figures published today show that the group’s earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 13.9% to $2,228m last year. This decline was mainly due to higher costs and a lower average copper sale price.

However, Antofagasta remains a highly profitable company. Today’s numbers show an operating profit margin of 29%. Management has  also confirmed that copper production is expected to rise from 717,600 tonnes to between 750,000 and 790,000 tonnes in 2019. Higher copper prices could provide a big boost to the group’s profits.

Antofagasta’s shares rarely look cheap. But I think the group’s profitability and strong cash generation justify a strong price tag. At the time of writing, the stock trades on 18 times forecast earnings for 2019, with a 2.4% dividend yield. I’d be happy to buy at this level for a long-term portfolio.

One pharma stock I’d buy

I have mixed feelings about some of the big pharmaceutical firms at the moment. But one medical stock that is on my buy list is FTSE 250 firm Hikma Pharmaceuticals (LSE: HIK).

Hikma specialises in producing generic versions of popular medicines. These are sold as cheaper alternatives to branded products whose patent protection has expired.

The group’s revenue rose by 7% to $2,076m last year, while underlying operating profit rose by 19% to $460m. Shareholders received a 12% dividend increase, maintaining the company’s track record of market-beating income growth.

Although profit margins on generic treatments are not always as high as on patent-protected newer medicines, Hikma’s approach does have some benefits. The group takes less risk on research and development and is able to sell its products into large, mature markets, where demand is already strong.

In my view, now could be a good time for investors to get on board at Hikma. New chief executive Sigurdur Olafsson is keen to find new routes to growth. Debt levels are low and the stock’s valuation on 16 times 2019 forecast earnings seems reasonable to me.

Although the dividend yield of 1.8% is quite modest, the payout has risen by an average of 13% per year since 2013. I view the shares as a long-term buy for dividend growth.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals. 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.

However, could the stock be set for another big upsurge, alongside small-cap peer Alliance Pharma (LSE: APH), whose shares have seen an even bigger pullback since soaring last year?

Growth across the board

Hikma posted strong results today. These followed leadership changes and a major overhaul of the business, including the consolidation of its Generics manufacturing facilities and US distribution facilities.

Group revenue increased 7% to $2.1bn, with core operating profit up 19% to $460m, and core earnings per share (EPS) rising 31% to $1.378 (104.4p at current exchange rates). The board lifted the dividend 12% to $0.38 (28.8p).

All three of its businesses — Injectables, Generics and Branded — increased their revenues and profits. And there was growth across all three of its geographical regions: US (62% of group revenue); Middle East and North Africa (32%); and Europe and Rest of World (6%).

Very optimistic

Hikma’s shares are trading at 1,580p, as I’m writing, which is 22% below last year’s high of 2,025p. The trailing price-to-earnings (P/E) ratio is 15.1 and the dividend yield is 1.8%. While the yield is admittedly skinny, the P/E is reasonable for a blue-chip stock in the defensive pharma sector.

Furthermore, Hikma’s transformational changes and strong performance in 2018 have new chief executive Siggi Olafsson “confident that we can build on this momentum going forward,” and executive chairman Said Darwazah “very optimistic for the future.”

I can’t see Hikma’s shares doubling again in the space of a year, but with the business back on track, the longer-term outlook appears promising. I rate the stock a ‘buy’.

Unmerited de-rating

Alliance Pharma has a growing portfolio of pharmaceutical and consumer healthcare products it owns or licenses the rights to. It sells these products in more than 100 countries.

Its shares are trading at 65p, down 36% from last year’s high of 102p. I’m at a loss to understand quite why the stock has slumped so far. A £0.7m step-up in its future annual cost base, due to a raft of regulatory and accounting changes, hardly seems sufficient to merit such a de-rating. There was a hefty share sale by company founder (and now a non-executive director) John Dawson in November, but the shares had already completed much of their decline by that date.

Further growth ahead

In a trading update in January, ahead of annual results scheduled for release a week on Tuesday, Alliance said 2018 revenue was £124m — up 22% on the prior year, or up 4% excluding acquisitions. It also said “underlying profit before tax is expected to be in line with [unspecified] expectations” and that “free cash flow for the year was slightly stronger than anticipated at approximately £16.1m.”

A research note dated November on its corporate website has underlying profit before tax of £28.9m, free cash flow of £15.5m, underlying EPS of 4.66p (10% ahead of 2017), and a dividend of 1.46p (also up 10%). At the current share price, the P/E is 13.9 and the dividend yield is 2.25%.

I see the shares as very buyable, with the company having said in January: “We look forward to delivering further growth in the year ahead.”

The post Could this FTSE 100 stock double your money again? appeared first on The Motley Fool UK.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Alliance Pharma and Hikma Pharmaceuticals. 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.

Funny pharm

Although FTSE 250-listed Dechra Pharmaceuticals (LSE: DPH) is trading 213% higher than five years ago, it crashed last summer and still trades almost 25% lower than it did six months back. As Kevin Godbold reported at the time, the plunge came even as the company posted 14% revenue growth and 21% earnings growth.

The collapse was triggered by a management warning that a major US supplier is moving onto its patch in the UK and mainland Europe, upping competition. Today, the international veterinary pharmaceutical operator issued an update for the six months to 31 December, which said trading “was strong and in line with management expectations,” with reported group net revenue up 18%. Europe and North America are both doing well, helped by the temporary market absence of a competitor product Zycorta in the US.

High synergy

The £2.37bn company has also completed its Brazilian acquisition Venco, while two other recent acquisitions are performing strongly, creating material synergies, and Brexit contingency preparations are “progressing well.” There was no mention of US competition, which may explain why the shares are down 0.7% today, despite many positives, in line with FTSE 250 slippage.

Dechra has regularly posted double-digit earnings growth in recent years and City analysts expect it to grow 14% this financial year and next. However, trading at a forecast valuation of 26.3 times earnings, you pay a price for success.

Dividend policy is progressive. Last year, payouts were hiked 19%, although it yields just 1.2%, with cover of 3.3. We may hear more about the US challenge when full-year results are published on 25 February. Right now, though, Dechra looks tempting.

Road to recovery

Generic drug specialist Hikma Pharmaceuticals (LSE: HIK) has also struggled after suffering three successive annual drops in earnings (2015, 2016 and 2017), but now seems to be on the way back.

The FTSE 250 stock is up 56% in the last 12 months. City analysts calculate that earnings jumped 23% in 2018 and will rise 3% and 8% over the next couple of years. As Ed Sheldon sets out here, the group was forced to issue a series of profit warnings but has recovered strongly thanks to positive broker reports, upbeat trading updates, and increased guidance for its injectables and generics businesses.

Going anti-viral

Sadly, you’ve missed the best of the recovery (unless you listened to Ed), so what’s the outlook today? Hikma still only trades at 15.3 times forecast earnings, so doesn’t look overpriced. Again, this is a growth rather than dividend stock, although the yield of 1.9% has cover of 3.4.

Hikma is also winning new contracts, signing in January an exclusive licence to distribute one of Beijing Sciecure Pharmaceutical’s niche injectable anti-viral medicines across the US for a minimum eight years, with a two-year option to extend. Last month, its US subsidiary launched a generic equivalent to seizure treatment Lundbeck’s Onfi. This £3.83bn company is in fine form and worth considering, if you wish to inject a bit of growth into your portfolio.

The post I think these 2 fast-recovering FTSE 250 pharma growth stocks could make you richer appeared first on The Motley Fool UK.

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals. 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.

So instead of companies at the sharp end of an industry, you invest in those providing intermediate goods and services.

But what if you think the whole market is overvalued, where do you turn then? I can’t help seeing the London Stock Exchange Group (LSE: LSE) itself as perhaps the best picks-and-shovels stock there is. Whether investors are piling into the next big thing, or rushing to sell due to the latest panic, the LSE gets its cut every time.

And it’s more than that, also being big in European capital markets, international benchmarking services and clearing, and financial information services. That’s been partly achieved by acquisition, as shown by Friday’s news that the company has bought up more of LCH Group Holdings, a clearing house that serves major international exchanges and covers a wide range of financial assets.

LSE looks pretty Brexit-proof to me too, with its network of subsidiaries throughout Europe.

Long-term growth

The company’s Q3 update looks pretty good, showing an 8% rise in total income to £522m in the quarter, with total income for the nine months up 10%.

I think we’re looking at something pretty rare in the FTSE 100 — a company with sustainable growth characteristics. We can see that through years of strong, often double-digit, EPS growth, and through forecasts of further growth of around 15% per year for this year and next.

The share price has followed suit, growing 175% over the past five years. A result of that is a higher P/E valuation of above 20 — but quality costs more, and I don’t see many safer long-term stocks than the LSE.

Generic products

The picks-and-shovels approach is one that I think applies well to technological sectors too, like the pharmaceuticals business. Our big two, AstraZeneca and GlaxoSmithKline, have been through a tough patch due to the expiry of key patents and increasing competition from makers of generic drugs, while there were few replacements coming through the drug development pipeline.

So why not go for the actual generic manufacturers instead, like Hikma Pharmaceuticals (LSE: HIK)? It makes generic products, as well branded ones and injectable pharmaceuticals — to stretch the analogy a little, perhaps it’s akin to makers of gold jewellery?

Its own troubles

Hikma has faced its own crisis which led to three years of declining earnings and to a big share price slump in 2017 that wiped out its previous few years of gains.

But the firm is on the mend with forecasts for a return to EPS growth for this year and next. And after a very strong recovery in 2018 so far, the shares are still up 55% over the past five years, despite the crisis period.

The first half saw a 17% rise in core EBITDA leading to a 35% gain for core EPS, so forecasts might even be a little conservative. P/E multiples might look a fraction high at around 18, but that could soon drop if Hikma really is back to sustainable EPS growth.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca and Hikma Pharmaceuticals. 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.

Yet sentiment towards stocks can change quickly. In the last five months, Hikma’s share price has shot up again extremely quickly. Since the start of March, the stock is up over 120% and is now changing hands for 1,925p. So what has caused Hikma to rebound at such a rapid pace… and could there be more gains to come?

Broker upgrades

Hikma’s upward momentum began when the group released final results for FY2017 back on 14 March. Although the numbers weren’t that flash, with core basic earnings per share falling 8% in constant currency, several brokers updated their price targets for the stock and this boosted Hikma’s share price up above 1,100p.

Since then, the group’s outlook has continued to improve and the shares have kept climbing higher. A trading update released in mid-May was upbeat, and half-year results released last week were much improved. Group revenue was up 10%, core basic earnings per share lifted 38%, and the group raising its guidance for its injectables and generics businesses. As a result, brokers have continued to upgrade their earnings estimates for the company and lift their price targets. Over the last month, the consensus FY2018 earnings per share figure has risen by $0.13 to $1.06, which is quite a significant upgrade. So are there more gains to come, or is it too late to buy?

I do like the long-term story here. Hikma’s exposure to fast-growing markets and its focus on affordable drugs make it well positioned to capitalise on the world’s ageing population and the demand for healthcare. The forward P/E of 23.2 doesn’t look unreasonable, in my view. Having said that, the stock has had a phenomenal run since March, so I’d be inclined to wait for a pullback before buying.

Another growth star

Another FTSE 250 star that has performed exceptionally well in 2018 is IT specialist Softcat (LSE: SCT). Its shares are up over 60% this year, so can it keep delivering gains to investors?

I last covered Softcat back in May, shortly after Neil Woodford sold his holding in the company. Back then, I said that I didn’t think it was time to sell up just yet as the company appeared to still have considerable momentum. That call looks good now, as the shares have risen another 18% since and, in July, the group advised that full-year 2018 adjusted operating profit will be “materially ahead of prior expectations.”

After a 60% year-to-date share price rise, Softcat shares certainly don’t offer the value they have in the past, when the stock’s P/E ratio has often been in the low 20s. With analysts forecasting earnings per share of 27.4p this year, today the forward P/E is a lofty 30.6. Yet the growth story here still looks intact. As a result, I continue to rate the stock as a hold.

The post Is Hikma Pharmaceuticals the hottest growth stock in the FTSE 250? appeared first on The Motley Fool UK.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals. 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.