A lot of stocks has shown good growth over the past year. Last year at this time, the stock market rally was just about to start. But no one knew it at the time. So, many stocks were at rock bottom prices, surrounded as they were, by extreme uncertainty with regards to what would happen next. But even by those standards, this FTSE 250 penny stock has performed particularly well.
FTSE 250 stock with standout performance
I am talking about the Mitie Group (LSE: MTO), whose share price has more than doubled. This is in stark contrast with many other stocks that also recovered from November last year but that have seen sharp share price corrections in recent months. In fact, in another article today, I wrote about the FTSE 100 industrial metal miner Rio Tinto, which performed very well earlier in 2021, but whose share price has now dropped to almost the same levels as this time last year.
Mitie Group sees a return to profits
So what is making the Mitie Group tick where others are seeing dwindling fortunes at the stock market? This question is pertinent for me, because as a potential investor I need to know if there is still steam in the stock or it is just being carried forward by momentum that will die out sooner or later.
I think the company has something to say for itself. It provides facility management services that include security, cleaning, engineering, and catering among others. Partly thanks to the fact that the economy has come back to life and partly due to the fact that demand for its cleaning services remains elevated in a pandemic-conscious environment, the company’s prospects look bright. It has raised its profit guidance for the year ending 31 March 2022.
Share price expected to double
Analysts are super-bullish on the stock. Even the most pessimistic analysts expect its share price to rise by 20% from the present levels in another 12 months as per numbers compiled by the Financial Times. And the most optimistic among them actually expect its share price to more than double again in the next year. If that happens, it will indeed be a standout stock that did well irrespective of whether a stock market rally was there or not. The catch of course is that analyst estimates are subject to change, because circumstances keep evolving.
The red flag and takeaway
Speaking of which, there is one red flag I found when analysing the stock that indicates that all may not be smooth sailing for the company in the future. Mitie Group has struggled with profits in the recent past. It has reported losses in three of the past five years. So even if I ignore the last year considering that it was a difficult one for the entire economy, it still does not have a long-term trend of turning in profits.
But right now, things look good for Mitie. This penny stock continues to be a buy for me.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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