This FTSE 250 stock could outperform Rolls-Royce over the next 5 years!
The FTSE 250‘s filled with hidden opportunities in 2026. While most investors are fixated on winners of the past like Rolls-Royce, the smart money’s hunting for potential winners currently being overlooked by the market.
It’s with this stock picking strategy in mind that the team of experts at Berenberg Bank have spotted something interesting: a dirt cheap retailer trading at just seven times earnings at the beginning of a potential Rolls-Royce-like turnaround story.
So what is this mystery stock? And is now the perfect time to consider investing?
The next Rolls-Royce?
Five years ago, Rolls-Royce’s financials were in a dire state. While the pandemic obviously did a lot of damage, the engineering giant’s problems started long before Covid-19 came knocking. Strategic missteps and operational mismanagement led to the business bleeding cash, with stagnating sales and ever-increasing losses.
While not as extreme, there are some parallels that can be drawn with B&M European Value Retail (LSE:BME) today. Rising labour costs, inventory mismanagement, and poor strategic execution have led to margin erosion, higher debt, and tumbling profits.
But if the experts are right, that could all soon be about to change.
The road to recovery
With B&M recognising its errors, a new leader has been brought in to right the ship and get the business back on track. And while Tjeerd Jegen has only been in the corner office for less than a year, his ‘Back to B&M Basics’ turnaround strategy’s already starting to bear fruit.
By simplifying product lines, cutting prices, clearing out old inventory, and giving more operational freedom to store managers, B&M hit a critical milestone overlooked by most investors â like-for-like sales have returned to growth. And this trend also continued into January.
Of course, whether revenue momentum will be sustained has yet to be seen. But it’s nonetheless an encouraging early recovery signal that could become even more prominent as management accelerates execution throughout 2026. And that helps explain why B&M shares are already outpacing the FTSE 250 so far this year.
What’s next?
A return to organic growth is definitely a step in the right direction, especially if this can continue in line with expectations.
In fact, Berenberg is projecting that with good execution, B&M shares could rally to 300p â a 68% potential return over the next 12 months. And if the retail stock’s able to make a full recovery back to peak 2024 levels, then a 236% recovery rally could be on the table across the next handful of years â something that Rolls-Royce will struggle to deliver at a market-cap of £105bn versus B&M’s £1.7bn.
However, as previously highlighted, that all depends on good execution. Even after stabilising sales growth and restoring margins, B&M then needs to recapture its lost market share from a fiercely competitive rivals â a task that’s far easier said than done.
So with all that in mind, what should investors do? Personally, I’m still a bit on the fence. B&M appears to be making the right moves, but with the recovery still in its early rounds, I want to see a bit more progress before throwing my hat into the ring.
Luckily, there are plenty of other turnaround opportunities to explore within the FTSE 250.
The post This FTSE 250 stock could outperform Rolls-Royce over the next 5 years! appeared first on The Motley Fool UK.
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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value and 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.
