Here’s why I’m avoiding this FTSE growth stock just now

FTSE 100 (London Stock Exchange Share Index) on Gold Coin Stacks Isolated on White

Parsley Box Holdings (LSE:MEAL) is a stock I cannot see myself investing in for my portfolio right now. Despite being heralded as a potential FTSE growth stock, I am not buoyed by its recent results and the competition it faces.

FTSE AIM newcomer

Parsley Box is a firm specialising in delivering ready-made meals to individuals ages 60 and above. The average age of the population in the UK is increasing. This increase presents a good opportunity for Parsley to capitalise on the growing demographic. It has been investing heavily in marketing its products, including a £1.2m television advertisement.

Parsley was founded in 2017 and only joined the FTSE AIM in March. At that time, shares began trading for 200p per share. As I write, shares are currently trading for 103p per share, which is close to a 100% drop in share price. As a savvy investor, I understand newer, smaller firms can experience volatility on the stock market, especially those that are labelled FTSE growth stocks.

Mixed performance and risks

On Tuesday, Parsley released its interim results for the six months ending 30 June 2020. They were a mixed bag in my opinion, and that is a red flag for me as a potential investor. The headline that stuck out to me were pre-tax losses of £5.4m, up from £1m a year ago. This included costs of £1.1m associated with its initial public offering (IPO).

Parsley reported revenues rose by 26% to £14m. This was driven primarily by a 76% increase in active customers. Orders from returning customers grew by 38% but new customer additions had slowed down as pandemic restrictions were eased. Returning customers is positive as it shows a loyal following.

The losses Parsley is experiencing are not uncommon for a new FTSE growth stock. I understand costs linked to an IPO and lots of marketing are necessary to succeed in the long term. My concern is the lack of new customer sign ups. This risk tells me that perhaps the firm did well due to restrictions during the pandemic and now that reopening is underway, progress may tail off. I believe that new business is just as important as repeat customers.

In addition to this risk, competition is intense and could be detrimental to Parsley’s progress. Established retailers such as Tesco, and growing discount supermarkets such as Aldi and Lidl, are direct competition for Parsley and its offering. This will affect Parsley’s future prospects in my opinion.

My verdict

As I stated earlier, I would not buy shares in Parsley Box right now. There are positives about the firm and its direction and it could be a successful FTSE growth stock story in the very long term. Right now, there are too many risks that do not sit well with me.

The post Here’s why I’m avoiding this FTSE growth stock just now appeared first on The Motley Fool UK.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you’ll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

More reading

Jabran Khan has no position in any of the shares mentioned. 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.

Leave a Reply

Your email address will not be published.