2 cheap FTSE 250 growth stocks I’d hold for the next 5 years

Hand holding pound notes

Five years is a relatively short share-picking timeframe given that we are often encouraged to take a long-term view when it comes to investing. I think though that it is useful to consider what might happen in the next five years as a way to start thinking about which businesses are tapping into dynamic trends that should help them to grow. Here I have picked out two companies that I think are well positioned for further growth in the coming half decade. 

Going digital

Softcat (LSE: SCT) is an IT services company with a share price that is on the charge. So far in 2019, the shares have been among the biggest risers, climbing by an incredible 60%.

It is not hard to see why. Investors are impressed by the company because of its growth. In the half-year to 31 January, revenue rose 21.1% versus the same period the year before, while operating profit increased by 40.4%. The company also added 620 new customers. An update in May telling investors full-year results will now be slightly ahead of previous expectations will have added to the excitement around this growth company.

Given the meteoric rise of the shares, it does mean that they would not now be called cheap, the P/E ratio being a little over 31, but growth investors may well think the price is worth paying for a company operating in an industry that is itself performing very well. Given Softcat’s success to date, and no signs of a slowdown, despite the tough economic environment, there is no hint that the company won’t continue to outperform over the next few years.

Changing habits

Shares in price comparison group Moneysupermarket.com (LSE: MONY) have also been doing very well so far this year, having increased by around 36%. The shares are a little less expensive than Softcat’s, trading on a P/E ratio of just over 21.

The company, which aims to change consumer habits by encouraging us to shop around for the best deals on everything from insurance to credit cards, has also been posting strong growth. Its first-quarter revenues leapt by 19%, driven by a particularly solid performance from its home services business. Total revenue for the quarter ending 31 March rose to £104.9m from £88.3m year-on-year. In other good news for investors, the company outlined its plan to return £40m to shareholders via a special dividend of 7.46p.

The company is not without risks, as analysts at Berenberg have pointed out, because there is the potential for the comparison group’s markets to weaken, alongside growing margin pressures and intensifying competition in its core verticals, resulting in what they believe will be low profit growth in the future.

My view

However, this seems like a pessimistic view. Yes, the shares have risen quite sharply over recent months, making buying now more risky than it was back at the start of the year, but Moneysupermarket has strong brand awareness, a history of pre-tax profit growth – it rose from £66m in 2014 to £106.9m in 2018, and a sustainable and growing dividend. It is for these reasons that I think the comparison group will keep on rewarding investors over the next five years.

Capital Gains

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Andy Ross has no position in any of the shares mentioned. The Motley Fool UK has recommended Moneysupermarket.com. 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.