In August, the top-performing FTSE 250 inventory was Simply Group (LSE:JST). After rallying 21%, it’s now up 95% over the previous 12 months. For a corporation with a market cap of £1.48bn, that is fairly a formidable feat! But regardless of the soar, I believe that there’s additional room to maneuver larger. Right here’s why.

Outcomes assist to spark a transfer

To start with, let’s run by way of why it jumped a lot final month. One of many massive influences was the H1 outcomes, which got here out in the midst of the month. When the title of the report is “consistently outperforming our targets”, you realize that it’s going to be an excellent learn.

Gross sales grew by 30%, filtering down to assist working revenue soar by 44% versus the identical interval final 12 months. The outlined profit pension aspect of the enterprise is de facto motoring. Curiously, the report famous that “over the past 18 months we have written over one third…of all defined benefit transactions in the market, more than any other provider.” That’s a really highly effective remark and exhibits the place that it has grown to have on this area.

The outlook going ahead is one thing that helped to push the inventory even larger. The agency expects to exceed the earlier steering for full-year working revenue. It doesn’t cease there, with Simply Group anticipating that the underlying drivers of development ought to stay intact for the foreseeable future.

Why it might maintain going

Even with the soar in August (and for a lot of the previous 12 months), the price-to-earnings ratio isn’t excessive. It at present sits at 5.11. For reference, I take advantage of 10 as a ratio for a reasonably valued firm, so a ratio of 5 makes me suppose the inventory is undervalued.

Given the trajectory of earnings, I solely anticipate the earnings per share a part of the ratio to develop over the following couple of years. If the share price doesn’t enhance, this is able to make the ratio fall additional. Logically, I’d anticipate the share price to rally, no less than to maintain the ratio at 5. If something, I’d anticipate the tempo of the share price soar to be bigger than that of earnings, to be able to push the ratio nearer to 10.

In my eyes, which means that I nonetheless have time to purchase and that I haven’t missed the boat.

Factors to recollect

Earlier than I rush to purchase the inventory, I do want to simply accept potential dangers. One is regulatory change. In my opinion, the insurance coverage trade is one in all (if not essentially the most) tightly regulated areas within the UK. Which means any modifications can have massive implications for the longer term operations of Simply Group.

One other issue I want to concentrate on is the impression of rates of interest. Numerous the funding portfolio for the pensions is predicated round bonds. When rates of interest fall, bond costs go up, however the yields go down. This could make it tougher for the corporate to realize a excessive charge of curiosity on these investments.

Even with these issues, I believe the corporate is in an awesome place proper now. I’m eager about including it to my portfolio for the long run.