The FTSE 250 has underperformed the FTSE 100 over the past year. Indeed, whereas the FTSE 100 has seen a rise of around 7%, the FTSE 250 has sunk nearly 12%. This may be due to the abundance of less-developed companies in the latter, and they’ve struggled to deal with issues such as inflation and the risk of a UK recession.
But this has led to several bargains on the index. On The Beach (LSE: OTB), a travel retailer that has faced significant disruption since the pandemic, is one of my personal favourites at the moment. This is especially true after the company has dropped over 11% in the past month, and nearly 50% in the past year. In my opinion, this has led to the FTSE 250 stock being far too beaten down.
Recent results
On Tuesday, OTB released its half-year trading update. Overall, there were many positive signs. For example, monthly booked sales, which is the total transaction value of holidays booked every month before cancellations and adjustments, totalled £385.8m. This was 6% up on the same period in 2019, which was pre-Covid. This demonstrates that travel has rebounded.
Further, revenues were able to rise over 1,000% year-on-year to £52.9m. This follows the relaxation of restrictions on travel from the UK to other European holiday destinations in January 2022. However, revenues were still down around 17% from the same period in 2019, demonstrating that travel has not fully recovered.
What about the future?
There were both negatives and positives to take from a forward-looking standpoint. From a positive perspective, the past few months have seen further improvements. For example, at the start of the second half, sales were 33% higher than pre-Covid levels. Therefore, I feel H2 revenues can recover further, and will hopefully exceed 2019 levels.
On the other hand, the company struck a cautious tone about the consumer environment. This is due to the impact of inflation, which has contributed to a cost-of-living crisis. Unfortunately, this could reduce the number of people wanting to go on holiday, a factor that would likely see the OTB share price sink further. This was the principal reason why the share price dropped over 10% after the results.
What’s next for this stock?
The stock has been significantly beaten down over the past few months. However, the company is in a far better position than it was during the pandemic. Further, as the company is targeting the premium end of the market, I believe it should be able to mitigate the impacts of the cost-of-living crisis well, as its consumers are more resilient to price hikes.
This means that I’ll continue to add OTB shares to my portfolio at its current price. Its upside potential just seems too strong for me to ignore.
