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Have you seen what FTSE 250 have you done in recent years? I have it and I like it.
From an August 2021 high of over 24,000 points, the mid-cap index has fallen well below the FTSE 100. It lost 16%, while the main London index gained 17%.
Larger stocks have outperformed smaller ones in terms of share price growth, and that bucks the trend.
Over the long term, the FTSE 100 has been growing at an average of around 7% per year. Meanwhile, the FTSE 250 has been managing around 11%.
Ups and downs
That said, anyone investing for the long term should sometimes expect short-term issues, like that 16% drop in the smallest index since 2021. And both indexes fell hard in the 2020 stock market crash.
The big question is… will the stock market get back on track? Is the FTSE 250 set for a new period of outperformance?
I think there's a good chance it will happen.
That said, it is entirely possible that outperformance has been a peculiarity of recent decades and that the two indices could advance at the same pace in the years to come.
But why would growth stock investors buy smaller stocks if they don't expect better growth than mature blue-chip stocks?
Bullish on growth
That's one of the reasons I'm bullish on the FTSE 250 for the next decade. When inflation stabilizes and interest rates fall, I can see a resurgence of growth investment in the UK stock market.
So what potential growth stock bargains do I see out there? A lot, and I will choose Telecommunications Plus (LSE: TEP) as an example.
The company operates under the Utility Warehouse brand and offers bundled public services, including telecommunications.
In the last five years, the share price has risen 25%. But it was much higher in 2022 and went through a previous boom and bust cycle that peaked in 2014.
Growth Stock Volatility
Big highs and big lows are part and parcel of investing in growth stocks. And I would never buy one unless I knew I could handle them.
And, since its launch, Telecom Plus shares have risen 700%, while the index has gained 190%.
Forecasts put earnings per share (EPS) growth at 37% between 2023 and 2026. We're waiting for 2024 results, but the latest update says that “Adjusted pre-tax earnings for FY24 are expected to be near the high end of market expectations.“.
Those forecasts would reduce the price-to-earnings (P/E) ratio to 16 by 2026. And I think most growth investors would consider it cheap.
Dividends too
Oh, and there are growing dividends too, with an expected yield of 4.4% by 2024.
Does this mean I will buy Telecom Plus? I don't know yet and I haven't looked much beyond these few figures. If I do, I will consider the competitive risks of the utilities business and the past volatility of this stock.
But there are more like this on the FTSE 250, and I think that shows that a lot of them could be super cheap right now.
