UK shares: should I buy or avoid this FTSE 250 stock?

The UK national flag in front of Canary Wharf skyscrapers where professionals trade shares for a living.

I am always on the lookout for UK shares that will boost my portfolio. One FTSE 250 stock I am considering is Elementis (LSE:ELM).

FTSE 250 pick

Elementis is a speciality chemicals firm that produces and sells chemical additives with consumer and industrial applications. It employs over 1,600 people across 30 locations worldwide. Some of the products it creates and sells have applications in personal care products such as deodorants and cosmetics. From an industrial perspective, Elementis’s products have many applications in the construction industry.

As I write, Elementis shares are trading for 148p per share. This time last year, shares were trading for 73p per share. A 102% share price increase in 12 months is impressive. Not many UK shares I have examined recently have achieved such a feat. In the year to date alone, shares have jumped from 115p per share to current levels, which is a 28% increase.

Reopening demand benefits Elementis

Most UK shares have benefitted from the reopening of the economy. Elementis is one such firm. For example, the UK construction industry has been recovering well and it seems the worst of 2020’s disruptions may be over. Elementis’ products used in the construction industry are only set to grow.

Besides the construction industry, post-pandemic consumer demand has increased in Elementis’s core markets. These are the US and UK. I believe this presents good prospects for products such as deodorants and skin care cosmetics.

Elementis provided a half-year report at the end of July that confirmed my assertions above. Revenue increased by 17% compared to the same period last year. This was driven by improved industrial demand and customer restocking. Operating profit rose by 29%. Profit after tax came in at $28m compared to a loss of $51m in the same period last year. Furthermore, Elementis also managed to deliver $25m of revenue from new business sales. It also had 12 new product launches, which helped increase new product sales from 11% last year to 13% this year.

UK shares have risks and rewards

I see two risks with Elementis as a potential investor. Firstly, the Covid-19 pandemic affected it quite severely financially and operationally last year. The pandemic is not over and further restrictions across different parts of the world could negatively affect it once more. In addition to this, chemical firms often have a bad reputation and are targeted by environmentalists and other groups to contest their use of chemicals and their effect on the environment. These issues often affect investor sentiment towards chemical firms.

Despite the risks associated with Elementis, I believe it would be a good addition to my portfolio at current levels. It also has a historic track record of financial growth. I know past performance is not a guarantee of the future but I find it a useful gauge when examining a company. Before 2020, revenue and profit grew year-on-year for three years in a row. At this point I would be happy to invest in some shares of the FTSE 250 incumbent for my portfolio.

The post UK shares: should I buy or avoid this FTSE 250 stock? appeared first on The Motley Fool UK.

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Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Elementis. 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.

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