2 FTSE 250 stocks that could put the Boohoo share price to shame

A colourful firework display
A colourful firework display

Over the years I’ve come to see a familiar pattern with growth stocks. An early soaring share price would crash back down, go through a few false restarts, before settling down to a rational long-term growth phase.

The hard part is that it’s impossible to time any of that, which brings me to the Boohoo Group(LSE: BOO) share price. Boohoo shares soared in the two years to mid-2017, then fell back before reaching a new (but lower) high, and then they’ve slipped again.

That looks uncannily like what happened to ASOS a few years earlier, and those shares took four years to regain their initial high point.

Better value?

But there are stocks out there that are past their early irrational volatility, and I’m increasingly seeing Telecom Plus(LSE: TEP) as one of them. Under its Utility Warehouse brand, it bundles telephony and broadband into all-in-one offerings with electricity and gas too. And it keeps its costs down by not paying for advertising but including customers as its brand champions.

The share price chart does, admittedly, look a bit like the Boohoo one, but one major difference is in the valuations of the two companies’ shares. Telecom Plus shares are on forward P/E ratios of 17 to 18, while Boohoo shares command a forward multiple of 43.

One caution I have with Telecom Plus, though, is its higher valuation than other utilities providers like National Grid with forward P/E forecasts of 13 to 14, and much higher than BT Group‘s lowly multiple of nine.

Then again, United Utilities carries net debt of around £6.9bn, and BT’s debt plus pension fund deficit is almost off the scale. Telecom Plus had net debt of just £11.2m at year-end, only around a fifth of adjusted pre-tax profit.

Solid as bricks

Another approach is to look at stocks that have just come off a rapid growth phase but still have solid, if modest, future growth on the cards. One example is housebuilder Bellway(LSE: BWY), which I reckon is showing attractive growth characteristics coupled with tasty dividends too.

The big double-digit earnings growth that characterised the last few years has come to an end, largely because it was driven by a strong recovery from a down spell for the sector. There’s also a fear of a downturn in the housing market, but as long as we have a shortage of homes in this country, I don’t see that as likely. And I really can’t see how fears that Brexit will put a dent in the industry make sense either.

Even on reducing forecasts, analysts are still expecting to see EPS growth of 14% this year, followed by 5% next. Bellway shares are now on a tempting PEG ratio of just 0.5.

Predicted dividend yields of around 5% per year put the icing on the cake for me, and I see Bellway shares as undervalued.

Which is best?

To get back to Boohoo, I do think the company is on a winning formula as the sheer convenience of buying stuff online could even make bricks and mortar stores obsolete. And high street shops are expensive to run too. But I can’t help feeling Boohoo still hasn’t had the full shakeout of early get-rich-quick punters that it needs.

I see plenty of less risky growth opportunities out there.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.