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Things are certainly looking up for UK shares in May – a far cry from the doom and gloom of early April! So with refreshed optimism, I’m considering what stocks could make good additions to my portfolio.
When assessing stocks, long-term investors like myself often utilise key metrics such as the price-to-earnings (P/E) ratio, dividend yield, and measures of profitability like return on capital employed (ROCE) or return on equity (ROE). These indicators help assess whether a share is attractively priced and capable of delivering strong returns over time.
With the FTSE 100 edging towards all-time highs, I’ve uncovered three lesser-known shares outside the index that I think are worth considering this summer. They each have a combination of financial metrics that I think make them key contenders for growth in 2025.
The recovering publisher
Bloomsbury Publishing (LSE: BMY) is a mid-sized publishing house famous for the Harry Potter series, among others. It enjoyed a spectacular rally following the pandemic and now, after a brief dip, looks to be resuming. With a modest market-cap of £506m and a reasonable P/E ratio of 13.89, the shares aren’t overly expensive.
Yet despite a strong niche, its fortunes remain tied to unpredictable publishing trends and consumer demand. A slowdown in book sales, especially in academic or trade titles, could hit revenues. Additionally, inflationary pressures on printing and distribution costs may squeeze margins, while reliance on a few major titles poses concentration risks.
Still, its financials are looking good. Its 2.4% dividend yield’s modest but sustainable, while a standout ROCE of 23.5% suggests efficient capital use. These solid fundamentals, combined with a niche dominance in academic and fantasy publishing, could support further growth in 2025.
The pensions specialist
XPS Pensions Group (LSE: XPS) specialises in pension consultancy and actuarial services, boasting a moderate £834m market cap and a favourable P/E ratio of 14.43. Its dividend yield of 2.65% adds steady income, but the highlight is a remarkable ROE of 38.12%, signalling exceptional profitability and shareholder value creation.
It’s worth noting that it operates in a heavily regulated sector, and changes to pension legislation or funding rules could impact demand for its services. The high ROE may not be sustainable if growth slows or margins contract. Furthermore, competition from larger financial firms and automated pension platforms could threaten future profitability.
But considering the persistent demand for retirement planning, I think it has promising growth potential. I mean, it’s already up 237.5% in the past five years, equating to annualised growth of 27.5% a year!
The online trading giant
A heavyweight in financial derivatives and trading platforms, IG Group (LSE: IGG) commands a vast £19.27bn market-cap. A staggering net margin of 35.31% highlights the company’s exceptional operational efficiency.
Yet despite strong margins, it faces regulatory scrutiny across multiple jurisdictions, which could restrict product offerings or increase compliance costs. Revenue’s also highly sensitive to market activity — a prolonged period of low volatility or reduced client trading could lead to earnings pressure. Cybersecurity risks and reputational exposure in the trading sector also remain material concerns.
What I like is the low P/E of 11.61, which suggests the shares may be undervalued, especially considering a generous 4.17% dividend yield. And if market volatility persists, it could benefit from increased trading activity and strong earnings growth.
