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Significant share price returns don’t just have to come from penny stocks. Companies already doing well in the market can push higher, gaining a multi-billion market cap along the way. Here’s one FTSE 250 stock that has gained over 500% in the past five years, making an early investment of £5k very worthwhile.
New name, same story
The stock I’m referring to is Lion Finance Group (LSE:BGEO). The 19% gain in the stock over the past year feels almost underwhelming compared to the 515% rally over five years. For those unfamiliar with the name, it was formerly known as the Bank of Georgia, with the name change coming into effect in February.
It operates primarily in Georgia and Armenia, providing a range of banking and financial services through its subsidiaries, including Bank of Georgia and Ameriabank. It primarily serves retail customers and businesses. As such, it makes money like most traditional banks. It generates fees and commissions from making payments and providing advisory services. A large part of revenue comes from net interest income.
Reasons for the surge
Some might wonder how the bank stock could have jumped so much, especially when comparing it to some of the major FTSE 100 banks. There are some key drivers behind the move.
A big one is the digital transformation and increase in customer engagement. We take digital banking for granted in the UK, but in many developing countries, this isn’t standard. Lion Finance has pushed hard in the past few years to invest in tech and online platforms, leading to an increase in digital monthly active users (MAUs). In the latest annual report, the Bank of Georgia has 1.6m MAUs, up 17.5% versus the previous year.
The group has also benefitted from delivering strong financial performance. Some of this is due to the efficiencies generated from being more digital and online. Yet some kudos needs to be given to the underlying economies. For example, the Georgian economy grew by 9.5% last year! This puts our 0.9% GDP growth rate into perspective. If the economy grows quickly, there’s more demand for banking services.
Finally, last year the group bought Ameriabank, Armenia’s largest bank. This has already helped to boost overall finances and should continue to do so in the coming year.
A tidy return
So, £5k invested back in May 2020 would now be worth £30,750. That’s an incredible return. However, the share price hasn’t rocketed higher in a straight line. There have been months when the stock has fallen, so it really highlights the importance of having a long-term investment horizon and controlling your emotions.
Looking forward, there are risks. Revenue and costs are primarily denominated in the local currencies. These are very volatile, so any future depreciation could impact earnings when looking at results through the lens of the British pound. Regional instability and political uncertainty are other factors to consider.
Even with this, the FTSE 250 stock is in a great position and clearly has strong momentum right now. I think it can still ber worthwhile for investors to consider it, albeit not quite at the breakneck speed of the past few years!
