As an investor, I have to balance between looking back at the past and trying to predict the future. I want to look at stocks that have been performing well and make a judgment call as to whether I think the move higher can continue. One example in this regard is the FTSE 250 stock Future (LSE:FUTR). The share price has risen by over 100% in the past six months and clearly something is going well over there. So should I buy in for further potential gains?
The background on Future
Future is a FTSE 250-listed stock that operates in the media industry, known by many for its magazine portfolio, digital content and events. ‘Media’ is a broad category, but Future does operate in a broad space. It has over 200 brands within entertainment, tech, gaming, sports, home interest and more.Â
It generates revenue mostly from e-commerce and digital advertising. The nature of the industry means that the business has a strong operating profit margin, as the cost of sales is relatively low. For example, in the latest H1 2021 results, the operating profit margin came in at 33%.
The business model allows Future to grow inorganically via buying brands over time. Even so far in 2021 the company has bought GoCo Group (including GoCompare), Mozo and Marie Claire US. The immediate scale that can be provided by this strategy is high, as the businesses are already established.
Reasons to like this FTSE 250 stock
Despite the huge share price return over the past six months, I don’t feel like the jump is erratic. If I look at the performance over a longer time period, it has been growing in almost a linear fashion. Over two years, the share price is up 186%.Â
I feel the nature of the move higher makes it a reason to consider buying in itself. Some stocks see a sudden spike due to an acquisition or strong results. Others are generally choppy, seeing large moves both higher and lower. For Future, the steady climb to me is the best kind of stock return. It looks more sustainable and ongoing, given the past performance of the FTSE 250 stock.
Aside from the technical analysis, the fundamentals look good too. H1 results showed revenue growth of 89% versus H1 2020. This helped to drive a 110% increase in profit before tax during this period. The company acknowledged these “exceptional results” and put them down “to the diversity of our revenue streams, the agility of our people, and the scalable operating model we have built over time”.
None of these points look to be a flash in the pan, so I’d expect the growth to continue.
Concerns on valuation
One clear risk with a share price that has rallied so much is that it pushes the price-to-earnings ratio higher. It currently sits at 57, considerably higher than some other FTSE 250 stocks and above the sector average. This could mean that the stock is overvalued, which is a worry. If I do buy some shares and this turns out to be correct, then I could be left buying at the top of the market and holding a loss for a long period.
Overall, I’m considering buying shares in Future at the moment, given the incredibly consistent rally over time.