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Every quarter, a handful of UK stocks normally get promoted or relegated from the FTSE 100 and FTSE 250. This is based on share price performance and associated changes in market capitalisation.
As things stand, there are three stocks set to join the mid-cap index. These are Wickes (LSE:WIX), Gamma Communications (LSE:GAMA), and Avon Technologies (LSE:AVON).
Should I buy any of these soon-to-be FTSE 250 stocks?
Wickes
The first thing I look for in a stock is the growth rate. I want to invest in a firm that is growing strongly and set to continue doing so in future. Therefore, I’m ideally wanting some sort of secular growth that the company is capitalising upon.
Immediately, this makes me think Wickes might not be a good fit for my portfolio. The share price is up 46% year to date, but still about 11% lower than when it listed in 2021 after being spun off from Travis Perkins.
Wickes sells DIY products and demand will generally wax and wane depending on what’s going on with inflation and the economy.
In the first 17 weeks of 2025 though, group revenue increased by 6.9% year on year to £533m. It said it was capturing market share as more local trade professionals choose Wickes.
During the early May bank holiday, the company enjoyed its best-ever week for sales of compost and top soil. But that was due to the nice weather, which unfortunately can’t be relied on in the UK. If inflation spikes and the economy contracts, growth could slow.
There’s a 5% dividend yield here and an undemanding forward price-to-earnings (P/E) ratio of 11.6, based on next year’s forecast. The firm could also end up benefitting from the Labour government’s house-building drive.
However, looking at the growth rate, this business doesn’t excite me. In 2023, revenue was £1.55bn. In 2026, it’s expected to be just under £1.7bn, meaning there’s not much top-line growth here.
Avon
Avon Technologies is more interesting to me. The firm makes things like gas masks, combat helmets, and various breathing apparatus. I expect demand for these to stay strong as Europe re-arms and global defence spending remains elevated.
First-half revenue rose nearly 17% to $148.7m, with the order book closing up 24% ($247m). Solid stuff.
That said, a permanent ceasefire in Ukraine and US defence budget cuts are potential risks to medium-term growth here.
The stock is currently trading at 30 times forecast earnings for this fiscal year (ending September), which is a bit too pricey for me.
Gamma
The one that piques my interest the most here is Gamma Communications, which has a £1.1bn market cap. It provides cloud-based communication and connectivity solutions, aimed mainly at small and medium-sized enterprises.
Naturally, a UK recession could impact customer acquisition growth. But Gamma has a growing presence in Spain, Germany, and the Netherlands, so is becoming increasingly diversified.
In recent years, the firm has achieved a compound interest growth rate (CAGR) of 12% in revenue and 14% in earnings. Future growth looks strong too, as Gamma is quite disruptive by offering telephony, internet, mobile, and security services through a single platform.
Finally, the valuation is attractive, with the growth stock’s forward P/E ratio at just 12.5. I’ve put the stock on my watchlist while I dig in a bit more.
