This FTSE 250 stock will smash Rolls-Royce shares over the next year, according to City analysts
UK investors are heavily focused on Rolls-Royce shares right now and itâs easy to see why. Over the last three years, this stock has delivered life-changing returns (it has turned £2k into £28k since October 2022). Looking ahead, however, City analysts see more potential in other UK stocks. Hereâs a look at a FTSE 250 stock they believe will deliver much higher returns in the medium term.
Is Rolls-Royce about to run out of steam?
While Rolls-Royce shares clearly still have momentum at the moment (theyâre up about 65% this year), analysts donât see much potential for gains from here.
In fact, looking at the consensus share price target, it seems analysts expect the stock to fall. Currently, the average price target is 876p â about 10% below the current share price.
Big returns in the FTSE 250?
Itâs a very different story for FTSE 250 stock Pollen Street (LSE: POLN) though. Here, the average price target is 1,051p.
Thatâs approximately 31% above the current share price of 800p. In other words, analysts reckon this stock is going to rip.
I can see why the City likes this stock. Pollen Street is an investment company that specialises in alternative investments (private equity and private credit). And right now, this area of the investment world is hot. Today, high-net-worth investors canât get enough of these asset classes in their portfolios.
Meanwhile, activity in the capital markets is picking up. This is creating more opportunities for firms like Pollen Street. And lower interest rates could potentially give activity a further boost. Lower rates can make it cheaper to borrow and also make it easier to sell portfolio companies.
A low valuation and high dividend yield
As for the valuation, it looks very attractive. Currently, Pollen Street has a forward-looking price-to-earnings (P/E) ratio of just 10. Thatâs far lower than the valuation on some other alternative investment stocks. US giant Apollo Global Management, for example, currently has a P/E ratio of about 20.
Finally, itâs worth mentioning dividends because this stock appears to be a cash cow. For the 2025 financial year, analysts expect a payout of 55.4p per share. At todayâs share price of 800p, that translates to a yield of almost 7%. Add that to the projected share price gains (31%) and investors could be looking at a total return of about 38%.
Worth a look?
Now, thereâs no guarantee that this stock will provide attractive returns from here, of course. Often, analysts’ forecasts turn out to be completely wrong.
One risk with this company is an economic downturn and a freeze-up in the capital markets. This could create challenging conditions for Pollen Street and other alternatives firms.
But I think it has a lot of appeal and is worth considering today. Given the low valuation, I can see this stock outperforming Rolls-Royce shares over the next 12 months.
The post This FTSE 250 stock will smash Rolls-Royce shares over the next year, according to City analysts appeared first on The Motley Fool UK.
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Edward Sheldon has no positions in any shares mentioned. The Motley Fool UK has recommended Rolls-Royce Plc. 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.
