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The FTSE 250‘s packed with brilliant growth shares right now. And following years of underperformance, investors can pick many of these up at bargain-basement prices.
Take retailer Pets at Home (LSE:PETS). At around 293p per share, it trades on a trailing price-to-earnings (P/E) ratio of 16.9 times. This is some distance below its five-year average of 22 times.
The cost-of-living crisis has damaged demand for its discretionary products more recently. But as inflationary pressures ease, could now be the time to buy this recovering growth share?
In the doghouse
Pets at Home shares slumped at the start of the year when it downgraded profits predictions for the full year (to March).
Back then, the retailer slashed its underlying pre-tax profits estimates to £132m, a result it confirmed yesterday (28 May). This was down 3.2% year on year.
Group sales rose 5.2% over the period, to £1.5bn, with turnover rising 5.1% on a like-for-like basis. However, the company was hit by declining revenues as sales of its higher-margin accessories struggled.
At group level, margins dropped 1.2% year on year to 46.8%.
Growth returning?
However, more stable trading of late suggests the retailer could be turning the corner. City analysts certainly believe Pets at Home’s earnings column will rebound over the subsequent couple of years. They forecast progress of 11% in each of the subsequent two monetary years.
This displays expectations that individuals could have extra to spend on their pets as inflation and rates of interest seemingly fall.
A protracted interval of financial stagnation might show problematic for the FTSE 250 firm. On high of this, the enterprise additionally has to beat extreme competitors from supermarkets and on-line pet retailers to develop revenues.
However Pets at Dwelling’s transformation programme might assist it to supercharge turnover from this level on. Funding in branding and its digital platform is already delivering huge rewards, and the corporate just lately opened a brand new distribution centre to facilitate future gross sales progress.
The cat’s whiskers
On stability, I believe Pets at Dwelling shares may very well be an excellent long-term funding, given how strongly petcare spending is forecast to proceed rising.
Sector gross sales within the UK have rocketed 150% over the previous 20 years and now whole £8bn a yr, in accordance with Pet Eager. This illustrates how we’re devoting increasingly consideration and assets to our furry companions.
Because the revenues chart above reveals, Pets at Dwelling has been in a position to successfully harness regular progress within the animalcare market. And a persistent rise in sign-ups to its loyalty scheme’s omen. The variety of Pets Membership members rose one other 1.6% final yr, to 7.8m.
I believe Pets at Dwelling is without doubt one of the FTSE 250’s most tasty progress shares. And at present costs, I believe it’s a discount value critical consideration.
