One way of identifying those with the most potential is to look at stocks that are trading close to their 52-week lows. In some cases, they may have fallen out of favour due to an operational or financial problem that won’t last forever. In these circumstances, a strong recovery could be on the cards. But what’s gone wrong with these five?

Delving deeper

Four of them are suffering as a result of the war in the Middle East.

Fears that rising oil prices will stoke inflation and potentially lead to interest rate rises is affecting Barratt Redrow, the FTSE 100 housebuilder.

Travel disruption is weighing heavily on the share prices of Hostelworld, the travel agent specialising in budget-friendly hostels and social accommodation, and WH Smith, the airport retailer. The latter’s also trying to rebuild investor confidence following a serious accounting error.

Similarly, yesterday (12 March), On the Beach warned that it had experienced a “significant slowdown” in demand for holidays, particularly in Turkey, Greece, Cyprus, and Egypt. As a result, the group was suspending its earnings guidance for the year ending 30 September 2026 (FY26).

In other words, it has no idea what the long-term impact will be. As the group itself says: “The timing of when the conflict will end and the shape of recovery in demand to these destinations are unknown.” Given the uncertainty, I don’t think it would be sensible to make an investment at this time.

An uncertain outlook

This is particularly unfortunate given that FY25 was the group’s best ever year and its impressive growth continued into the first two quarters of FY26. Until recently, most of the group’s key metrics were going in the right direction, including volumes, average booking values, and its margin.

It reported FY25 adjusted earnings per share (EPS) of 19p, which means its stock currently trades on just 8.8 times historic earnings. And it reconfirmed its medium-term EPS target of 38.7p. Impressively, it has no debt (other than leases) on its balance sheet.

The group’s invested heavily in its app and has recently submitted it to ChatGPT, which is opening a “new distribution channel” and demonstrating its“technology readiness for an AI-first world.”

As much as I like the group, it’s a red flag to me that it’s unable to predict what’s going to happen to its business. But when the position becomes clearer, I’ll revisit the investment case.

The outlier of our five is YouGov. There are no specific repercussions from what’s happening in the Middle East other than fears of a global economic slowdown. However, there are worries that artificial intelligence could damage its business.

Big gains?

Of course, just because a stock is close to its 52-week low doesn’t necessarily make it a bargain. A recovery can’t be guaranteed.

And I would have to do more research before deciding whether our five will bounce back. But if all of them returned to their one-year highs, someone investing £1,000 today would see it grow to £1,440. This shows the huge potential returns that could be made from successfully identifying value shares.

The post 5 shares close to 52-week lows. Could they rise in value by 44% over the next year? appeared first on The Motley Fool UK.

During the year ended 30 September 2024 (FY24), the online travel agent reported adjusted earnings per share of 14.1p. By FY27, analysts are forecasting this to increase to 26.6p. If this consensus estimate proves to be correct, it means the stock’s earnings will grow at an average annual rate of 23.6% over the next three financial years. By anyone’s standards, that would be impressive.

Travelling in the right direction

Of course, these forecasts may be wrong. But the group’s recent performance suggests it’s possible for it to achieve this level of growth.

One of its key metrics is the total transaction value (TTV) of holidays booked. This reflects the revenue earned from holidays adjusted for cancellations and refunds. During the six months to 31 March 2025, the group’s TTV was £640.7m. Compared to a year earlier, this was 12.6% higher.

But by keeping a tight control on costs, it was able to increase its adjusted profit before tax (PBT) by 23%.

The group’s medium-term plan is to increase its TTV to £2.5bn, achieve EBITDA (earnings before interest, tax, depreciation, and amortisation) of £100m and report an adjusted PBT of £85m. During FY24, these were £1.16bn, £38m, and £31m, respectively.

Pros and cons

But the market is highly competitive and it’s hard for one travel agent to differentiate itself from another. On The Beach seeks to be different by tailoring its app to suit a customer’s individual preferences. Apparently, this has led to increased repeat bookings and a 27% reduction in calls to its customer service agents. The group is also heavily promoted its perks scheme — “making jollies jollier” — offering free airport lounge access and fast-track security.

A look at the company’s 10-year share price chart shows that the stock can be volatile. According to the Financial Times, it has a beta value of 3.2. A value of one indicates that it generally performs in line with the market as a whole.

However, it has to be remembered that the ‘Covid years’ fall into this period. During much of this time, travel was severely restricted. As a result, the company had to raise over £90m to stay afloat. But since reaching a pandemic low in August 2023, the group’s share price has recovered by more than 225%.

But I’m not convinced that earnings are going to grow at the rate forecast. The company says its investment case relies on offering flexibility on duration, airports, and hotels. But in my experience, most online travel agents provide this level of choice.

Also, it’s a tough market where price is the biggest factor in driving sales. The internet makes it easier for holidaymakers to shop around and, in some cases, removes the need for a travel agent altogether.

And a recent assessment by Which? was brutal. On The Beach placed 22nd in a survey of readers for the best beach/resort package holiday company. The magazine concluded: “With poor ratings for value for money and customer service, you should book with someone else.”

For these reasons, I don’t want to invest.

The post Analysts are predicting big things for this UK growth stock appeared first on The Motley Fool UK.

One FTSE share that I think could soar to new heights in 2025 is online travel agency On The Beach (LSE:OTB). The company had a record-breaking year in 2024. Pre-tax profits rose 25% to £31m, and total sales reached £1.2bn.

Why this is my favourite FTSE share

But what stands out is the company’s ambition for the coming years. It has a medium-term goal to double sales to £2.5bn. And management have a strategy that looks promising.           

When looking for small but mighty growth shares, I like to find companies that offer something new. For instance, it could be a new product, service, or technology. This FTSE small-cap share has three new developments.

For instance, On The Beach expanded its business to offer city break holidays. This should allow it to capture a larger share of customers’ holiday wallet.

It also started selling holidays from Ireland. This makes sense as it has similar trends and taste for holidays as the UK.

In addition, On The Beach managed to secure a partnership arrangement with low-cost airline Ryanair. This means that it’s now easier for customers to search for Ryanair flights as part of their holidays.

The partnership also resulted in lower admin costs for On The Beach, boosting its profit margin.

Fundamentally solid

Its potential is underpinned by strong financials. Despite sales and profits that are expected to rise by double-digits over the coming years, it remains remarkably cheap. This share offers a price-to-earnings ratio of just 14.

I’d class this as a high-quality business given its 25% profit margin and 19% return on capital employed.

I also like that it has a market capitalisation of just £410m. Small companies of this size can multiply much faster than the large FTSE 100 shares.

Some points to note

Bear in mind that smaller companies can carry more risk. This share in particular is focused on the travel sector. In recent years, the pandemic was detrimental to so many travel-related businesses. And any future crisis that prevents travel would likely hurt these shares.

In addition, if there was an economic downturn, it could also reduce demand for holidays.

Note that between 2021 and 2023 On The Beach shares fell by a whopping 58%. That said, since then, travel has bounced back.

Just recently, the world’s second-largest online travel agency Expedia reported “better-than-expected travel demand”. And several airlines recently reported renewed consumer confidence. That bodes well for On The Beach, in my opinion.

I happen to think this is one of the best opportunities for a FTSE growth share this year. As such, as soon as I can free up some cash, I’ll be popping it into my ISA.

The post Here’s 1 FTSE share I think will soar in 2025 appeared first on The Motley Fool UK.

Today, I’m reviewing the three biggest detractors in my current portfolio. Do I still believe in them?

Pack your bags

The performance of online holiday firm On the Beach (LSE: OTB) has been disappointing. There was me thinking that the end of the pandemic might see an explosion in ‘revenge spending’ as people emerge from their homes.

To some extent, this is what happened. But then came high inflation and a cost-of-living crisis. These succeeded in pushing the shares down and leaving my position underwater.

To be fair, On the Beach is trading well. The company recently reported half-year revenue of £80.8m. That’s an 11% increase year on year. It also forecast a record summer thanks to a bursting order book.

Surely this makes the stock– at less than 10 times forecast earnings — an absolute steal? It seems the market is unconvinced.

Since the next update (due September) covers that vitally important summer season, I’m staying put. I’m also crossing my fingers that there aren’t any more geopolitical wobbles or inflation spikes in the interim. These could do a lot of damage.

On the Beach is definitely ‘on the naughty step’.

Great company, bad investment?

Another loser has been Vimto owner Nichols (LSE: NICL). Again, a lot of this seems to be down to inflationary pressures.

This is particularly frustrating as this bears all the hallmarks of a ‘quality’ company.

First, it sells low ticket soft drinks that people buy out of habit. This makes earnings fairly predictable.

Second, its got solid fundamentals. It consistently makes great margins on what it sells and, outside of a pandemic, stellar returns on the money it puts to work.

There’s also virtually no debt on its books. Put another way, Nichols should easily survive another period of economic upheaval.

The problem is that these things look priced in (17 times forward earnings). I’m also not seeing anything that will put a rocket under sales in the near future.

I always intend to hold stocks for the long term but Nichol’s time could be up.

Blue sky bet

A third stinker is AIM-listed penny stock Seeing Machines (LSE: SEE). It runs high-tech tracking software that monitors drivers’ levels of fatigue. The goal is to reduce accidents on the roads.

Sounds good, right?

Sadly, it’s been anything but a smooth ride for investors so far. This is despite fairly frequent news on partnerships with major manufacturers.

Now, this was always going to be a risky buy. Growth stocks like this often need regular injections of cash to keep the lights on, regardless of how good its products are.

At least my holding is modest. As always, maintaining a diversified portfolio can help to minimise some of the financial pain that comes with less successful stock picks.

Perhaps the first cut to interest rates may finally spark life in more volatile, small-cap UK shares. Or perhaps confirmation that the company is now at breakeven (expected in 2025) will get things motoring.

I’m loath to cut my position. But a deadline has been set.

The post These UK shares are stinking out my ISA. Time to sell? appeared first on The Motley Fool UK.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Ashtead 

What it does: Ashtead is a construction equipment rental company that operates in the US, Canada, and the UK.

By Edward Sheldon, CFA. I’m bullish on Ashtead (LSE: AHT) for a couple of reasons right now. 

One reason is that the company is well positioned to benefit from the artificial intelligence (AI) boom. In the years ahead, major semiconductor companies such as Taiwan Semiconductor, Samsung, and Intel are going to be building a lot of new manufacturing plants in the US to handle the demand for AI chips. This construction boom should provide a very supportive backdrop for Ashtead, whose equipment is likely to be in high demand. 

Another reason I like the stock is that its valuation is quite reasonable. Currently, the forward-looking price-to-earnings (P/E) ratio is 17. I think that’s attractive given the long-term growth story associated with the building of chip plants and other infrastructure.  

Now, one risk to be aware of here is that Ashtead has some debt on its balance sheet. This debt could come into focus if interest rates rise from here, putting pressure on the share price. 

All things considered, however, I think the risk/reward proposition is attractive.  

Edward Sheldon owns shares in Ashtead.

Bodycote

What it does: provides heat treatment and thermal processing services to the aerospace, defence, energy, automotive and industrial sectors.

By Kevin Godbold.  Bodycote (LSE: BOY) posted full-year figures for 2023 showing growth in revenue, cash flow and earnings. To reward shareholders, the directors slapped 7% on the dividend and initiated a £60m share buyback programme.

Trading is going well and the cash is rolling in. The share price has been trending higher since last October, and City analysts pencilled in double-digit percentage earnings increases for 2024 and 2025.

Cost pressures have been easing for the business and the directors said they are “confident” in the firm’s prospects for ongoing profitable growth.

One risk, however, is cyclicality. That has shown up as volatility in the multi-year record for earnings and in a variable valuation. Previously, the stock has been prominent as a high dividend payer because of its suppressed valuation.

The multi-year dividend record is robust, and the yield well above 3% (24 April) is a good companion to the company’s enhanced growth prospects now.

Kevin Godbold does not own shares in Bodycote. 

Kainos Group

What it does: This tech company offers digital services and Workday tools to support businesses across the world.

By Oliver Rodzianko. After growing rapidly from 2020 to 2023, Kainos Group (LSE:KNOS) has slowed down slightly now. However, its long-term outlook still looks bright, and analysts expect things to pick up considerably in 2025.

The reason I’m excited about the growth slowdown is that I think the market has overreacted to this. The shares are down over 55% from their all-time high as I write. That means I might be buying the stellar growth that can come with a leading British tech company at a valuation the industry rarely presents.

Kainos is a leader in digital transformation. However, my main concern is that it hasn’t developed anything truly groundbreaking in the field yet. That means it could be more vulnerable to competition.

Nonetheless, with multiple areas of competency, including in Workday implementation for businesses, I think this tech firm has a strong future ahead of it.

Oliver Rodzianko does not own shares in Kainos.

On the Beach

What it does: On the Beach is one of the UK’s leading online retailers of short-haul beach holidays. 

By Paul Summers. Shares in holiday firm On the Beach (LSE: OTB) may have fallen back in 2024, but I’m optimistic we could see the beginning of a reversal when interim results are released next month. 

Having experienced its “best ever summer” in 2023, the company began its new financial year with “a record forward order book and significant momentum”. A recent partnership with Ryanair also bodes well and could push some analysts to revise their projections.

Of course, ongoing geopolitical tensions aren’t exactly helpful to any firm in the travel sector. The risk here is that things get worse before they get better. 

Then again, the stock already changes hands for just 10 times forecast earnings. Notwithstanding the bias that comes with already being invested, that looks too cheap to me.

When discretionary income rises as interest rates are cut, I’m optimistic my patience will pay off.  

Paul Summers owns shares in On the Beach

The post Best British growth stocks to consider buying in May appeared first on The Motley Fool UK.

Personally, I think blindly following an old investing adage and selling everything in the belief that others will follow suit is far from rational for a Fool like me.

Besides, some stocks might do very well over the next few weeks.

Ready to fly?

One example could be holiday firm On the Beach (LSE: OTB). The Manchester-based business drops its latest set of interim numbers on 14 May.

Now, I need to be wary of bias here. I’ve held the stock for a while now in the hope that there would be a sizeable recovery once Covid-19 was sent packing. Unfortunately, I’m still waiting for those significant gains. Still, the stock has climbed 15% in the last year, easily outperforming the major UK indexes.

This doesn’t feel unfair either. The firm experienced its “best ever summer” last year and began its latest financial year with “a record forward order book and significant momentum”.

Since then, a “transformational” partnership with Ryanair has been announced, allowing On the Beach to offer flights by the airline as part of its packages.

Surely things can only get better as we approach the company’s busiest trading period?

Cheap growth stock

Well, ongoing geopolitical jitters aren’t good news for a sector that has faced just about every headwind going in the last few years. But one thing in the £250m-cap’s favour is its asset-light business model. While airlines need to grapple with heavy fixed costs, On the Beach can simply re-allocate its marketing spend to more stable destinations.

The stock also trades at just 10 times forecast earnings. This suggests to me that the price is firmly up to date with events.

So, while buying any stock in the hope that it will rise on release of results is a risky strategy, I’m not about to sell my position either.

Solid performer

Another company that could do well next month is Bloomsbury Publishing (LSE: BMY). It’s set to release numbers for the last full year on 23 May.

Like On the Beach, the company’s share price has been showing some nice momentum in the last 12 months. Indeed, a gain of 23% at the time of writing is evidence that investors don’t necessarily need to back the latest tech darling to outpace the market.

Already priced in?

My one question mark when it comes to Bloomsbury is not the company itself; it’s the current valuation. A price-to-earnings (P/E) ratio of 17 isn’t a bargain relative to other stocks in the Consumer Cyclicals sector or the UK market as a whole. Put another way, the mid-cap can’t afford to disappoint on the day.

Then again, the firm did forecast that annual profit and revenue would be “significantly ahead” of market expectations back in February. If it can continue making a mockery of analysts projections next month, I think there’s a good chance of more upside ahead. With books by fantasy author Sarah J. Mass flying off the shelves in recent months, I don’t think this is necessarily asking too much.

If it is, at least there’s a fully-covered 2.3% dividend yield on offer.

The post May could be tough for UK shares. But these 2 might buck the trend! appeared first on The Motley Fool UK.

As an example, the share price of one company I hold in my portfolio has jumped 63% in the last month alone!

On the march

The high-flyer in question is small-cap holiday operator On the Beach (LSE: OTB).

I first began investing here as we emerged from the pandemic. To be frank, I soon thought I’d made a horrible mistake as the shares kept falling.

But recent price action has been far more encouraging. No doubt a lot of this can be attributed to a very encouraging set of full-year numbers released at the start of this month.

What’s going so well

As an indication of just how strong demand for holidays is, revenue for the 12 months to September 30 came in at just over £170m. This was almost 19% higher than that achieved in the previous financial year, helped by a healthy jump in passenger numbers over the summer months.

Elsewhere, On the Beach saw a reduction in marketing costs as a percentage of revenue and stable admin expenses. This led the firm to announce pre-tax profit of £12.9m. In FY22, it was £2.2m.

And the outlook?

I think there’s at least a good chance that recent momentum will continue. Total transaction value was up 26% in the first nine weeks of the new financial year due to booming winter bookings.

With growth like this, it’s no surprise that management already believes trading next summer will be “significantly ahead” of the same period this year.

And if inflation continues to drop and consumer confidence returns, I’m not about to argue.

Dividends to return

If that wasn’t good enough, the company also announced its plan to reinstate dividends from FY24. Now, this isn’t likely to be very much and I could easily get more income from elsewhere in the market.

But passive income was never my priority here. What’s more important for me is the positive signal it sends to the market. After all, it would be a pretty poor decision to start returning cash to shareholders again if the company wasn’t in rude health.

With trading going from strength to strength, not to mention almost £76m in cash on the balance sheet, that seems to be the case.

What I’m wary of

Despite all this, I’m keeping my feet on the ground. The travel industry is notoriously volatile due to the sheer number of factors that can impact trading — from poor weather to high fuel prices to terrorist activity.

Nor is this a space devoid of competition. To stay ahead, On the Beach has needed to spend money on developing its platform and improving its customer experience. I can’t see this changing going forward.

Still great value

These concerns aside, I’m tempted to add to my stake here, especially as On the Beach shares continue to look fairly priced.

A PEG ratio of less than 0.7 — where anything under 1 usually signals good value — suggests I’d still be getting a lot of potential bang for my buck.

The post This white-hot UK growth share has rocketed 63% in the last month! Should I buy more? appeared first on The Motley Fool UK.

That sudden rally

The first half of 2023 wasn’t anything special for the company as the management team attempted to get things back to normal following a difficult few years. But as it reported earnings in September, it became clear that the business was performing much better than the market was expecting. This has led to a steady rally in the second half of the year.

With revenue of £1.1bn, marking a 26% increase year on year, profits soared an impressive 66% to £23.6m for the year ending 30 September. The firm also announced the reinstatement of its dividend from the full year 2024, reflecting its robust cash reserves and healthy financials. Needless to say, investors have liked what they’ve seen so far.

But with aggressive rallies such as this, buying in can be tricky. Clearly there’s still a cost-of-living crisis in the UK, and investors may wonder whether travel will continue to be a priority for many people who are struggling to pay the bills. That may mean the share price goes down again on the slightest bit of bad news.

However, analysts referencing the recent challenges in the luxury goods market due to cost-of-living pressures have observed that this trend hasn’t yet impacted the premium holiday segment. And holidays in general remain in demand. As a result, the future still looks good for the company and it continues to report strong forward bookings, with sustained demand for both short and long lead time bookings.

Valuation

I’d never want to a buy a company just as the rally finishes. However, the valuation of the company suggests there may be more room to grow. A discounted cash flow calculation, which calculates an approximate fair price, also suggests that the share price of £1.50 is about 66% below the fair value of £4.35. The price-to-earnings (P/E) ratio of the shares at 23.5 times is fairly close to the average of the UK travel sector at 26.4 times, so I wouldn’t be too afraid of picking up shares at this price.

However, with 29.5% growth in earnings forecast, FTSE investors may continue to like this one if the share price keeps moving higher.

No stock is risk-free

For a company doing so well in the sector, and with absolutely no debt, it very much controls its own destiny. However, there’s always the chance that the economy takes a negative turn, impacting the demand for premium travel. Yet I suspect that On the Beach is far better positioned than many to get through any short-term disruption.

What’s the verdict?

I like what I see with this company. Not many FTSE firms have as many positive areas of their business, most notably a lack of debt and strong growth figures. I’m usually cautious when it comes to companies that have seen such growth in a short period, but I’ll be taking a small position at the first chance I get.

The post This FTSE company could be one to watch appeared first on The Motley Fool UK.

1. Jet2

Like the rest of the travel industry, shares of Jet2 (LSE:JET2) have been performing well recently. The stock is up 30% so far this year and for good reason too. Its most recent trading update was a momentous occasion. That’s because it’s the first FTSE-listed airline to see its load factor finally surpass pre-pandemic levels.

Apart from that though, the budget airline also reported strong sales of packaged holidays and forward bookings. Most importantly, the AIM stalwart shared that it’s now anticipating profits to beat analysts’ estimates of £317m. The firm is now forecasting profit before tax to come in between £370m and £385m. Pair that with an immaculate balance sheet and Jet2 shares certainly look lucrative for my portfolio.

To make things sweeter, the low-cost carrier has very favourable valuation multiples as well. As such, it’s no surprise to see Barclays rating the stock a ‘buy’ with a price target of £13.50. While this only presents a 10% upside from its current levels, I believe the potential for the AIM share is much higher. Therefore, buying at these levels would still give me a good chance at beating the FTSE 100, which averages a 7% return annually.

2. On the Beach

On the Beach (LSE:OTB) has also performed well. Shares of the online beach holidays retailer have shot up by an impressive 85% from their October low.

The AIM firm is carrying that strong momentum into 2023 after its latest Q1 update, which saw its share price rise by another 10%. The business recorded higher bookings in what’s usually its quietest quarter of the year, along with strong forward bookings and higher total transactional value (TTV).

What’s more, the group saw growth in its premium, long-haul, and B2B offerings, which tend to be higher-margin products. As a result, I’m expecting growth in these areas to lead to margin expansion, which should bring down its elevated multiples.

Either way, I believe the travel agency’s stock has the potential to beat the market given its strong balance sheet and travel demand. After all, Numis rates it a ‘buy’ with a price target of £2.60, presenting a 50% upside from its current levels.

3. Sosander

Another AIM share I’m eyeing is fashion house Sosander (LSE:SOS). The clothes company’s shares are already up 30% this year thanks to its mega deal with Sainsbury’s.

The fashion brand recently penned an agreement with the second-largest retailer in the UK, entering a wholesale agreement to sell its products. Although the initial rollout will be slow, the upside potential is certainly there to be realised. This is especially the case once its clothes start making it onto the racks of selected stores later this year. Higher sales figures would then bring down the shares’ current elevated multiples to more reasonable levels.

Combine the above with its strong financials, and it’s no wonder Sosander shares have an average price target of 35p. With a 32% upside, it’s certainly got the potential to beat the market as well.

The post AIM shares: 3 stocks to beat the market in 2023 appeared first on The Motley Fool UK.

Our monthly Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of small-cap recommendations, to help Fools build out their stock portfolios.

Why we like it: “Recommending or buying a company that’s so badly affected by Covid-19 obviously has its risks. However we have undimmed optimism regarding On The Beach’s asset-light approach to providing British consumers — as well as an increasing number of Scandinavian consumers — and high street travel agents an online platform to book sun-soaked holiday options.

“As we don’t believe the pandemic will significantly alter consumer habits or make international travel overly difficult in the long term, then the overall industry should bounce back just fine. And with competitors by and large in worse shape than itself, there’s a chance growth accelerates for On The Beach coming out of this crisis. But even if the company just keeps growing as it was and gets back to reliably growing profits and cash flow, we think it’s an interesting option at present.”

Why we like it now: The short-term outlook for discretionary consumer spending is, to put it mildly, not great. So why are we putting forward On The Beach as a Best Buy Now? Because the company is cash-rich with net cash of £64.5m as of the end of its year-end in September, is bouncing back from the pandemic with FY22 seeing a return to positive cash flow and statutory profits (albeit at lower levels than pre-pandemic given the ongoing travel restrictions through much of that period), and as an asset-light platform is well positioned to trim expenditures and conserve cash if consumer demand really drops off a cliff. Taking into account its large cash balance, On The Beach’s enterprise value at the time of writing was only £230m – which could be an attractive price to pay if the group can return to pre-pandemic levels of profitability and continue on taking share from legacy travel agents in the long-term. On The Beach is certainly a riskier option right now but for members who can tolerate and afford that heightened risk, we believe it’s worth taking a closer look at this month. 

The post Just released: the 3 best small-cap stocks to buy right now [PREMIUM PICKS] appeared first on The Motley Fool UK.