Three FTSE 250 stocks caught my attention today after they reported their trading updates. These are particularly heartening at a time when the latest UK economy update is weak. But can these stocks continue to perform considering the evolving recovery scenario? Let’s consider them one at a time.
#1. Dunelm: sales keep rising
The FTSE 250 homewares retailer Dunelm (LSE: DNLM) just reported an 8% increase in sales compared to the year before for the 13 weeks ending 25 September. Sales growth has corrected significantly from last year, but then that was an exceptional period for the retailer. Compared to the same time in 2019, which is the last pre-pandemic period, the company has actually seen a massive 48% increase.
I think this is encouraging, but at the same time there are risks to the stock as well. One of them is its already slightly high price-to-earnings ratio of around 21 times. With a softening in sales growth from last year, I am not sure how far this is sustainable, especially when it is facing cost pressures due to freight and driver shortages. I think its share price can potentially rise further, but just to be sure I would wait for its next set of full results before buying the stock (or not).
#2. Dominos: expansion underway
Pizza delivery company Dominos (LSE: DOM) also reported a healthy trading update, with an almost 10% increase in sale for the 13 weeks ending 26 September. It also opened 18 new stores in the UK & Ireland and is also recruiting 8,000 people now. This bodes well, especially since its revenues declined for its full financial year ending 27 June.
Its challenges are the same as those of Dunelm. The company has just said that it’s facing inflationary pressures, because of the lack of availability of labour as well as rising food costs. At the same time, its P/E is around 19 times, which is not low either. However, I think that going by its long-term share price trend, its established popularity, and its ability to be profitable year after year, I am positive about it. I have already bought the stock.
#3. Hays: hiring picks up speed
Recruiter Hays (LSE: HAS) is up by almost 3% today after releasing its trading update earlier today. The company reported 41% increase in net fees for the quarter ending 30 September compared to the year before. While the economic recovery has quite likely opened up demand for jobs, it is not just the quantity increase at play here. Hays also reports wage inflation at higher salary levels.
It expects to continue with strong growth, but there are risks to this recovery stock as well. First, recovery may slow down more. There is already increasing proof of that in the UK’s economy, for instance. Neither high employment nor rising wages are sustainable in a weak economy. And Hays’ P/E ratio has already run up to a huge 45 times. In this instance as well, I would wait for its full set of results to assess how much its share price could rise further.
Manika Premsingh owns shares of Dominos Pizza. The Motley Fool UK has recommended Dominos Pizza. 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.
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