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In my experience, FTSE 250 index'Great place to go shopping for growth stocks.' Games WorkshopIt's just one stock of the index that has made me a lot of money. Trading is now on FTSE 100 index.
In my quest to find the next stock market winners, I came across the following high-energy businesses. That's why it deserves serious consideration, in my opinion.
Strong returns
Defense companies have proven to be among the best-performing growth stocks post-pandemic. The Russian invasion of Ukraine in early 2022 sparked the sector's rise for the first time, as NATO countries boosted their defense budgets after years of underinvestment.
Since then, conflict in the Middle East and growing concerns about Chinese expansionism have given defense stocks an extra boost.
FTSE 250 Index quoted kinity q (LSE:QQ.) is one company that is thriving in the current climate. The latest financial data showed that the backlog of orders had reached record levels of £5 billion as of June.
Driven mainly by strong share price gains, the company has delivered an average annual total return of 15% since 2020. This beats the UK's average capital index return of 8% over the same period.
QinetiQ provides a wide range of products and services to governments around the world. Nearly 70% of its revenues are derived from its domestic market, where it has strong ties with the Ministry of Defence. The company's other two major markets are the United States and Australia.
Cyber opportunity
As I say, QinetiQ's expertise spans a wide range of applications across air, sea and land. Its operations include manufacturing target systems, supplying robots and training combat personnel. This gives them many ways to take advantage of growing defense budgets, and reduces reliance on one area to increase profits.
What I also like about the company is its expertise in cybersecurity, something not many other defense stocks offer. This is a rapidly growing sector as cyber attacks from individuals, groups and government agencies become increasingly common.
The latest data released by the UK's National Cyber Security Center (NCSC) showed50% increase in critical incidents“Over the past year. These include attacks that affected the central government, basic services, large numbers of local residents, or the national economy.
Against this backdrop, QinetiQ secured contracts worth £110m with the Ministry of Defense between April and June. It is already a key supplier to the MoD’s new multi-year £1.2bn Digital and IT Services (DIPS) framework.
Sustainable growth
The bright outlook for defense spending means City analysts expect QinetiQ to achieve sustained double-digit earnings growth over the next few years. Ambitious cost-cutting and restructuring in the US are also expected to give the bottom line an additional jolt.
| Fiscal year until March… | Earnings per share | Annual growth |
|---|---|---|
| 2026 | 30.78 b | 18% |
| 2027 | 34.81 p | 13% |
| 2028 | 38.27 p | 10% |
Of course, there are risks to these expectations. The defense sector is highly competitive, and winning additional contracts is never guaranteed. The uncertain outlook for US defense spending is another thing investors should take into account. QinetiQ sources approximately one-fifth of revenue from the United States.
However, I believe this FTSE 250 growth stock has what it takes to thrive in a very favorable trading environment. Furthermore, with a price-to-earnings-growth (PEG) ratio of 0.9, QinetiQ stock looks undervalued to me and is worth considering.
