The coronavirus outbreak has rocked markets around the world, and the FTSE 250 is no exception. The value of the index has dropped by 21% in the year-to-date as share prices tumble.
Many investors prefer looking at the FTSE 250 to find growth shares, rather than its bigger sibling, the FTSE 100. The theory is, smaller companies have the capacity to expand at a higher rate. As famed small-cap investor Jim Slater said: “elephants don’t gallop”.
Here is a bargain FTSE 250 company that I think could be one of the best growth shares to buy now.
The Go-Ahead Group (LSE: GOG) share price has fallen by 64% in the year-to-date. In fact, its plummeting stock price goes back further, with a drop of 69% in the past five years. However, just because a share price is cheap, it doesn’t mean it’s a bargain. Why do I think the transport company’s shares could be a great buy?
I’ve grown fond of transport companies lately. This might seem odd to some investors, who have seen various aviation brands on the brink of collapse. However, I think companies like Go-Ahead might be slightly different. The business is the UK’s leading public transport companies, transporting customers on its bus and rail network.
Best FTSE 250 share to buy right now?
Although it’s up for debate whether customers will return to air travel in light of the coronavirus outbreak, I think more localised travel by bus and rail is the unavoidable reality for some. Pre-coronavirus crisis, 60% of public transport journeys were by bus, with 2m people carried on Go-Ahead’s busses each day. Over the course of a year, 1bn people used Go-Ahead services each year. For some, bus and rail travel is completely necessary, whereas air travel might be a lifestyle choice.
I believe the market is pricing this FTSE 250 share unfairly. Go-Ahead Group’s shares are now trading at a price-to-earnings ratio of just 5.
In a trading update for the year ending 27 June, Go-Ahead Group stated that in recent weeks its mileage for regional busses was between 40% and 50% of normal scheduled levels. However, passenger numbers were at roughly 10% of usual levels. This shifted the balance between revenue and expenditure. Thankfully, the business received some support from the Department for Transport. The group has good liquidity and has no debt maturities ahead of 2024.
The business is looking to cut costs and is looking to freeze capital expenditure where possible. The company had previously guided full-year capital expenditure to be roughly £140m. This is now expected to be closer to £90m. Measures taken to reduce expenditure include leasing new vehicles where appropriate, rather than buying them. The FTSE 250 company’s interim dividend payment of 30.17p per share has been suspended.
The suspension of dividends might upset some shareholders but in these times, I’d rather own shares in a company takes these prudent steps in order to maintain good liquidity. Other FTSE 250 companies have taken similar measures.
When it comes to FTSE 250 bargains, I think that Go-Ahead shares tick the boxes. I think it’s one of the best FTSE 250 shares at the moment, which is why I’d buy now.
The post I think this is the best FTSE 250 share to buy right now appeared first on The Motley Fool UK.
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T Sligo 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.
Motley Fool UK 2020