Picture supply: Getty Photos
Development shares have an essential place in my portfolio. Since I hope to have many many years left in my investing journey, it’s price making an attempt to determine firms with important potential to turbocharge my long-term stock market gains. Shopping for regular dividend shares alone received’t minimize the mustard.
Nevertheless, not all development shares are created equal. Some would possibly seem enticing at first look, however on nearer inspection, they elevate too many crimson flags. In spite of everything, danger and reward are two sides of the identical coin.
With that in thoughts, listed below are a few FTSE 250 shares that I’m avoiding as we speak.
Ocado Group
As soon as a FTSE 100 darling, Ocado Group (LSE:OCDO) was relegated to the FTSE 250 index final 12 months. Frankly, the grocery technology enterprise has endured a disastrous inventory market efficiency currently. Ocado’s share worth is down almost 79% over 5 years.
The funding case for this development inventory sounds compelling on the floor. Ocado’s core providing — robotics and automation — has important potential to spice up supply chain effectivity. Within the low-margin grocery sector, that’s an interesting proposition.
Plus, Ocado Retail has been Britain’s fastest-growing grocer for 11 successive months, in line with Kantar. In FY24, this three way partnership with Marks and Spencer delivered a 13.9% income enchancment and expanded energetic buyer numbers by 12.1%.
Nevertheless, authorized hassle’s brewing for the net meals tie-up. M&S is withholding fee of a ultimate instalment price £190m as a consequence of Ocado’s failure to fulfill efficiency targets.
Ocado’s acknowledged that it’s going to think about using “all contractual or authorized means” to maximise the quantity payable if an amicable resolution can’t be reached. Contemplating the agency’s by no means turned a revenue and pre-tax losses have been £374m final 12 months, it will probably in poor health afford protracted litigation towards an in depth associate.
With job cuts on the agenda and slower development anticipated for the group’s expertise options division in FY25, it’s onerous to see the catalyst for an Ocado share worth restoration. There’s no clear rationale for me to danger my cash on the shares as we speak.
Wizz Air
One other FTSE 250 development inventory I’m sidestepping is low-cost carrier Wizz Air Holdings (LSE:WIZZ). At £14.60, the airline’s present share worth is sort of precisely the place it was a decade in the past.
A method to seize market share through aggressive growth makes Wizz Air a disruptive drive within the airline business. On the brilliant facet, a considerable order e-book and strong stability sheet bolster the funding case.
That mentioned, the share worth faces additional turbulence forward. Issues with Pratt & Whitney engines, which the agency makes use of for its plane, imply 40 planes will stay grounded till 2026. That’s almost 20% of its fleet. The end result has been two revenue warnings in six months, hammering investor confidence.
Moreover, the addition of extra unique routes in Wizz Air’s growth drive has come at a price. As an illustration, the finances airline’s publicity to wars in Gaza and Ukraine has curtailed development.
The enterprise additionally doesn’t evaluate favourably to its rivals on some crucial metrics. Wizz Air has unfavorable free money stream, whereas each easyJet and IAG boast optimistic figures. It’s additionally the one one of many trio that doesn’t pay a dividend. For me, this development inventory carries an excessive amount of danger for too little reward.
