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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 development of 11% in each of the subsequent two monetary years.
This displays expectations that individuals can have extra to spend on their pets as inflation and rates of interest possible fall.
A protracted interval of financial stagnation may show problematic for the FTSE 250 firm. On prime of this, the enterprise additionally has to beat extreme competitors from supermarkets and on-line pet retailers to develop revenues.
However Pets at House’s transformation programme may assist it to supercharge turnover from this level on. Funding in branding and its digital platform is already delivering huge rewards, and the corporate lately opened a brand new distribution centre to facilitate future gross sales development.
The cat’s whiskers
On steadiness, I feel Pets at House shares might 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 complete £8bn a yr, in line with Pet Eager. This illustrates how we’re devoting an increasing number of consideration and assets to our furry companions.
Because the revenues chart above reveals, Pets at House has been capable of successfully harness regular development within the animalcare market. And a persistent rise in sign-ups to its loyalty scheme’s an excellent omen. The variety of Pets Membership members rose one other 1.6% final yr, to 7.8m.
I feel Pets at House is likely one of the FTSE 250’s most engaging development shares. And at present costs, I feel it’s a cut price value critical consideration.