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Why is nobody talking about this gem of a FTSE 250 stock?

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Some stocks remain in the limelight for year after year. Two good examples are Lloyds Banking Group and Rolls-Royce. These are investor favourites, particularly in the retail space. Other shares, such as those outside of the FTSE 100, get less attention. There’s one FTSE 250 stock that has caught my eye recently, although it seems that few others have noticed it.

Spilling the beans

The company I’m referring to is PZ Cussons (LSE: PZC). The business owns and operates several brands in the beauty, hygiene and baby space. Some of the names include Carex, St. Tropez and Zip.

Even though most of us know certain brands, the parent company sometimes doesn’t get the same kind of media coverage. I think this is true with PZ Cussons over the past few years.

The share price hasn’t been a top performer when I put it against the entire FTSE 250. Yet is has gained 10% over the past year. When I compare it to the consumer staples sector, this is actually a very strong performance.

Within the same space there are global competitors like Procter & Gamble (-4%) and Johnson & Johnson (+4%). The respective share price performances over the past year are in brackets. From this I can see that PZ Cussons has actually done very well.

However, the fact that I appreciate this now when looking backwards won’t make me a penny of profit! What counts is if there’s still an opportunity going forward.

The outlook for 2023

In October, the full-year 2022 results were released. Revenue was broadly flat, but pre-tax profit dropped by 8.7% versus the previous year.

A big factor in this was the higher cost of goods sold. The impact of inflation and logistic costs hampered PZ Cussons here. However, the business is looking to phase in some of the cost inflation, along with adding some forward purchasing cover.

Given that most of the goods sold are consumer staples, I think the business can pass on most of the higher costs this year to consumers. The products are generally low-priced items, with modest price increases not likely to drive consumers elsewhere.

It’s clear from the revenue figure that demand is there. Even over the past three years, revenue has only fluctuated from £587m to £603m, despite a global pandemic! Therefore, I think this coming year will see robust demand and higher profitability due to lower costs.

A FTSE 250 outperformer

Last year, PZ Cussons outperformed the sector. This year, I think it could outperform the FTSE 250 average. One point I must flag up is the price-to-earnings ratio of 17.35. Although this isn’t very high, it certainly doesn’t rank as an undervalued stock. This could mean that it’s unlikely to jump significantly in coming months as it’s already fairly priced.

Ultimately, this doesn’t mean that I can’t make money from this stock in the long term. On that basis, I’m considering adding the share to my portfolio.

The post Why is nobody talking about this gem of a FTSE 250 stock? appeared first on The Motley Fool UK.

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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended PZ Cussons and Lloyds Banking Group plc. 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 2023