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In recent months, the FTSE 250 Index has begun to rise while the FTSE 100 Index It has remained fairly stable.
Is the midcap index ready for another streak of outperforming blue-chip stocks? Forecasts show big gains across the index.
Guaranteed success
Greggs Shares in (LSE:GRG) have risen 40% over the past five years, far outperforming the FTSE 250. And they have just received a further 5% boost (at least at the time of writing) from the first half results published on Tuesday (July 30).
The latest figures show a 14% increase in sales, with a pre-tax profit of 16%, but that is not what I am analysing today.
No, I've been looking at broker forecasts. They show a slight decline in Greggs' earnings per share (EPS) for the full year 2024. But the company has just posted a 15% increase in the first half.
This is a watered-down underlying figure that excludes one-offs, but it suggests forecasters may be underestimating things somewhat.
Earnings are increasing
City pundits already think Greggs earnings per share will rise by another 20% between 2024 and 2026. And I wonder if they might push that higher when they digest these first-half numbers.
My main fear regarding this stock is that the expected earnings growth may already be priced into the stock.
Before Tuesday's update, the stock was trading at 22 times forward earnings. And that price-to-earnings (P/E) multiple would still be above 18 based on 2026 expectations.
Is it a bit too high at the moment? I have my doubts, but it could be okay if those strong earnings forecasts can continue.
Banking growth
My next pick has no problem with a high price-earnings ratio. Bank of Georgia Group (LSE:BGEO), and we're looking at a ratio of just 3.8, and that's even after the share price has more than tripled in five years.
It is also forecast to have a dividend yield of 5.2%, which is in line with our own traditional banks, but that low price-to-earnings ratio is less than half of what we would have to pay for a UK national bank.
Does that make Bank of Georgia stock incredibly cheap now? Well, maybe not, if the risk is more than doubled.
Risky location?
The bank is based in Tbilisi, Georgia, and operates in Armenia and Belarus, so I suspect it is not subject to the same strict oversight as that in the UK. And perhaps that additional risk really does exist.
But then I look at the forecasts: they suggest EPS could grow by almost 50% between 2023 and 2026, which would further reduce the already low P/E.
Oh, and it looks like the dividend could grow by 28% over the same period, so it could outperform UK banks.
Whether this will turn out to be a good buy will depend largely on the future of the Georgian economy. And I have no idea what it will look like, but with these forecasts I want to investigate further.
