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In recent years, the number of people investing and trading in the stock market has skyrocketed. According HSBC, around 36% of Britons invest their money in the stock market. But as we move away from hypergrowth and meme stocks, I want to discuss FTSE 250 companies with sustainable growth prospects.
IG Group
One of the FTSE 250 companies I’m most excited about is IG Group (LSE:IGG). The company offers access to 19,000 markets for equities, commodities, equities and fixed income assets, as well as more complex instruments such as options.
As noted, the number of retail investors has grown substantially since the pandemic, where large amounts of free time and the prospect of massive profits boosted platforms like IG. In the 2022 IG Annual Report, the number of users increased from 5,000 in 2019 to a whopping 25,000 in 2022.
The share price has been trending downward in recent years, but as the business continues to grow and improve, I expect this to be an opportunity to buy shares at a discount.
Why would you want to invest?
In times of economic uncertainty, platforms offering trading services may not seem like a lucrative part of the market. However, even though 2022 was one of the worst years we’ve seen in decades, IG Group’s revenue continued to grow steadily. Investors can be just as active in a downtrend market as in good times, generating transaction fees and revenue for the business.
Economic environment aside, the business seems pretty solid. With a price-to-earnings (P/E) ratio of 6.8 times, IG Group is substantially below the industry average of 15.7 times. Furthermore, with the share price currently at £6.32, a discounted cash flow calculation of future cash flows suggests there could be 57% growth before the fair value of £14.64 is reached. . Analysts covering the company also see around 60% growth in the share price as possible over the next year.
These are all good signs for the company, but what is really interesting for investors is the 7.2% dividend. It’s by no means the largest on the FTSE 250, but we rarely see such huge growth potential alongside such a generous dividend. The company has a solid reputation for growing dividend payments and has healthy cash reserves to keep it going.
What are the risks?
With fears of a recession, there is a risk that business activity will decline substantially. This is likely to continue the downward trend in the share price, but at some point, the company’s growth potential will become attractive to investors.
Regulation is always a potential problem when investing in financial services. Since IG is now also looking to enter more markets, it will encounter more regulation. However, the move will potentially offer some revenue diversification, meaning there will be less risk to operations if any specific country becomes stricter.
I am buying?
Overall, I expect IG Group to be a winner in the coming years. The company overall seems to be in very good shape, and with such a healthy dividend, I expect investors to start taking interest again soon. I want to be ahead of the crowd, so I will buy shares at the next opportunity.
