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When a stock doubles in value in the relatively short space of a year, investors are clearly interested in the company. Typically, I see these moves when a company is scaling and growing rapidly, or if something has fundamentally changed (for the better) during that year.
Here is an example of FTSE 250 I have noted that I feel it has gone slightly unnoticed.
How do we get here?
I mean Metro Bank (LSE: MTRO). The share price has soared 143% over the past year. The share price gains are mainly due to a change in fortunes for the once-struggling bank.
In 2019, the company was hit by an accounting scandal that caused its stock value to drop. Although it began a transformation plan in 2020, progress was slow. Last year, the stock price fell further as it tried to restructure debt and raise capital to maintain operations.
Part of the process was to cut staff, with news last November of a 20% reduction in the workforce. Even as we reached 2024, the news that the CFO would resign with immediate effect in January did not help.
As a result, earlier this year the share price hit the lowest level since the IPO in 2016. At that time, an investor would have had to be very brave and content with taking a high-risk value bet to justify the purchase.
A change of fortune
The risk would have largely been worth it, given the stock's bullish explosion since the first quarter. The catalyst that sparked the rally was the release of its 2024 annual results. The bank posted a statutory pre-tax profit of £30.5m, the first time since 2018 that it turned profitable.
This was driven by continued cost reduction, even during a period of inflationary pressure. It benefited from higher interest rates, with an increase in the deposit base. Since it can generate a higher net interest margin on deposits held, it was a key factor in the company making profits.
A few months ago it confirmed the sale of the residential mortgage book to NatWest for 2.4 billion pounds. This will provide a big boost to the bottom line. It will also allow the bank to redeploy this cash to more profitable divisions, hopefully driving further growth by 2025.
The positive momentum has continued to move forward, with the stock seemingly hitting new 52-week highs on a regular basis.
The final result
I think investors should consider adding this growth stock to their portfolio as I don't think the share price rally is over yet. The price-to-earnings (P/E) ratio is only 7.22, below the benchmark of 10 that I use. Additionally, the stock is only at levels last seen in September 2023. So, it's not like this is an overvalued company right now.
I accept that one risk is the competitive landscape. Metro is a relatively new player in the market and will have a difficult time continuing to take market share from traditional players like Lloyds Banking Group. However, this is not impossible.
