When a stock doubles in value in the relatively short space of a year, investors are clearly keen on the company. Typically, I see such movements when a firm’s scaling and growing fast, or if something has fundamentally changed (for the better) over that year.
Here’s one example from the FTSE 250 I’ve noted down that I feel has flown slightly under the radar.
How we got here
I’m referring to Metro Bank (LSE:MTRO). The share price has rocketed 143% over the past year. Gains in the share price have primarily come thanks to a reversal of fortunes for the once-struggling bank.
Back in 2019, the company was hit with an accounting scandal, which saw the stock plummet in value. Even though it started a transformation plan in 2020, progress was slow. Last year, the share price fell further as it tried to restructure debt and raise capital to keep operations going.
Part of the process was cutting staff, with news last November of a 20% reduction in the workforce. Even as we came into 2024, news of the CFO stepping down with immediate effect in January didn’t help.
As a result, earlier this year the share price hit the lowest level since the IPO in 2016. At that point, an investor would have needed to be very brave and be happy with taking on a high-risk value play to justify buying!
A change of fortune
The risk would have paid off in a big way, given the explosion higher in the stock since Q1. The catalyst that sparked the rally was the release of the 2024 annual results. The bank posted a statutory profit before tax of £30.5m, the first time since 2018 it flipped to being profitable.
This was driven by continued cost reduction, even during a period of inflationary pressure. It benefitted from higher interest rates, with the deposit base increasing. As it can make a larger net interest margin on the deposits held, it was a key factor in pushing the company to a profit.
A few months back it confirmed the sale of the residential mortgage book to NatWest for £2.4bn. This will provide a great boost to the balance sheet. It’ll also allow the bank to redeploy this cash to more profitable divisions, hopefully fuelling further growth for 2025.
The positive momentum has kept rolling, with the stock seemingly hitting fresh 52-week highs on a regular basis.
The bottom line
I think investors should consider adding this growth stock to their portfolio as I don’t feel the share price rally’s done yet. The price-to-earnings (P/E) ratio’s only 7.22, below the fair value benchmark of 10 that I use. Further, the stock’s only at levels last seen in September 2023. So it’s not like this is an overvalued company right now.
I do accept that a risk is the competitive landscape. Metro’s a relatively new player in the market and it’ll struggle to keep taking market share away from legacy players like Lloyds Banking Group. However, this isn’t impossible.
