One FTSE 250 Support Services stock that I would avoid, and the £5 one I’d buy instead.

HWDN

The UK Support Services sector contains a number of constituents with various different areas of focus including security firms, home maintenance and even credit checking.

Within this sector builders merchants [TPK] Travis Perkins have seen a fantastic rise in share price from their lowly price of £2.20 in early 2009, to highs of £22.50 in mid 2015. Yet despite this significant growth in price, [TPK] remain a company I wouldn’t buy.

Over the last 10 years [TPK] Travis Perkins have only managed to achieve an average net earnings profit of 4%. This makes them too paper thin for me.

In addition to this, since 2015 they have seen a decline in net earnings year on year, falling from 5.2% to 4.3 over that period. This was caused by their cost of doing business rising at a greater rate than the revenue itself. Not a great sign for me.

These guys are no way in any ‘trouble’, but being this paper thin leaves them vulnerable and it wouldn’t take much for them to post further declines or worst case scenario, a loss year.

Instead of [TPK] I’d be more inclined to look at another FTSE 250 company in the same sector [HWDN] Howdens Joinery Group plc.

These guys have looked great since 2011 onwards. With a gross margin of 60%, and an expenses cost of an acceptable 70% a year, these guys have been growing year on year with a net earnings per year now reaching 13%.

After completely eradicating both short and long term debts they have grown their retained earnings pot from -£47 million in 2011 to £459 million in 2018. Even buying back their own shares for the last 4 years, reducing the number in circulation and raising the value of those outstanding.

Net assets are growing faster than liabilities and in fact liabilities have even begun to fall.

Everything I see points to a very positive future for this company.

And at a far more accessible £5 a share at time of publishing, I think [HWDN] are definitely worth looking at through the lens of your mechanical systematic trading system of choice. I’d place far more value on any long signals generated on this stock over [TPK]. Especially if you’re trading a longer term system with a +1 year outlook or greater.

[HWDN] are on my private watchlist. A watchlist whose combined constituents have over the last 10 years achieved an annualised27.3% return, compared against the FTSE 100’s 6.35% return over the same time period.

My watchlist is updated daily and shared weekly to my exclusive members only Inner Circle mentorship students along with full reports and analysis on many FTSE 100, 250, Small Cap and Fledgling stocks.

These exclusive members receive an email from me almost daily on new stocks to consider, including a weekly summary of the watchlist. 

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About Chris Chillingworth

Self confessed lover of racing, american football and whiskey. Trader and Investor since 2011. Chris has now coached over +1500 traders using his mechanical systematic trading strategies and now also runs a members only watchlist of FTSE stocks.

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