2 beaten-down FTSE 250 stocks to consider before markets rebound

UK shares have been under pressure lately, especially smaller companies listed on the FTSE 250. Rising interest rates, weak consumer sentiment and macro-uncertainty have dented investor confidence. Smaller-caps tend to react more sharply – both when fears take hold and when recovery begins. 

While large FTSE giants may offer relative safety, smaller stocks often deliver bigger swings, which may frighten some but could offer an opportunity for others. Earnings volatility, funding issues and underwhelming results are common risks these companies face. 

But every so often, I spot a few whose fundamentals are still good despite short-term struggles.

Here are two that have suffered losses this month but could come back stronger when markets recover.

Oxford Nanopore Technologies

Oxford Nanopore (LSE: ONT) develops a new generation of DNA/RNA sequencing technology. In its latest half-year results, the company announced its first-half gross profit rose 24% to £61.4m on the back of revenue that grew 28% to £105.6m at constant currency. Its pre-tax loss narrowed slightly to £69m from £71.4m.

Despite these seemingly strong numbers, its shares have been on a bit of a wobble, down around 25% in the past month. The reason for this dip seems to be the company’s lack of an upgrade to its full-year guidance, which still anticipates revenue growth of only 20%-23%.

This seemed to disappoint some investors who had hoped for a more significant improvement. However, I think the company’s continued reiteration of its guidance is still a good sign of its confidence. The financials look healthy, with very little debt and liabilities that are well-covered by assets.

Risk-wise, it’s still a high-growth company that’s not yet profitable, so its spending is significant, and it’s burning through cash. It also faces competition from larger, more established players in the gene sequencing space. The journey to profitability might be longer than some hope, and any delays could cause further share price volatility. 

However, for a long-term investor, I think the current low price is an opportunity to consider as it continues to grow its market share in an exciting, high-tech industry.

PayPoint

PayPoint (LSE: PAY) operates a vast network of payment services, including eMoney, pre-paid cards and electronic point of sale systems. Its shares are also down, having fallen around 10% in the past month, which seems to reflect a period of weak sentiment.

Margins fell to near-1% in the second half of 2024 but it’s still profitable with a return on equity (ROE) of 17.9%. And while debt has risen above £100m, its free cash flow remains strong at £48.42m.

The dividends tell a promising story too, with a 5.8% yield and payments that are covered 2.4 times by cash. Reassuringly, the board recently proposed a final dividend of 19.6p a share, an increase from 19.2p last year.

As with any stock, an investor should be cautious. The falling margins are a risk that must be monitored. Although it’s a good sign that the company remains profitable, it must keep a tight grip on costs. While somewhat niche, it faces competition from newer payment technology providers.

However, its forward price-to-earnings (P/E) ratio is a low 8.75, which suggests earnings are expected to improve notably. Combined with the dividend, I think it’s worth looking at for both value and income investors.

The post 2 beaten-down FTSE 250 stocks to consider before markets rebound appeared first on The Motley Fool UK.

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Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK 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.

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