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The FTSE 250 is up 13% in the past year. That’s pretty solid, but there are individual performers that have done even better. For example, Funding Circle (LSE:FCH) has climbed 75% over the past year, including a jump of 12% today (10 November).
For a company that’s struggled to convince investors of its long-term profitability in the past, this represents quite a turnaround. Yet despite the rally, I think there are several reasons why the growth stock could have further to run.
Today’s pop
The immediate catalyst is a positive trading update, with the firm upgrading its full-year revenue guidance today following stronger-than-expected demand from UK companies.
Management now expects 2026 revenue of at least £275m, compared with its previous forecast of more than £255m. This represents an increase of almost 8% to the earlier guidance and would put revenue growth at approximately 35% versus 2025.
For me, this is particularly encouraging because it suggests the business isn’t simply benefiting from a temporary improvement in lending conditions. Rather, its strategy of expanding its product offering appears to be delivering proper results.
The outlook from here
One reason I’m optimistic is Funding Circle’s increasingly diversified business model. Traditionally, the company focused on providing term loans to smaller businesses. That’s how I know the company at least. However, products such as FlexiPay and its business credit card are helping it build a broader financial services platform.
I don’t expect it to become a fully-fledged bank anytime soon. But even with the credit card offer, it creates opportunities to generate additional revenue from existing customers rather than relying exclusively on attracting new ones.
Even with these products, it’s nifty because they’re capital-light. What I mean by this is that it doesn’t need to stump up its own cash to fund fresh loans in most cases. Rather, it can facilitate lending through institutional funding partners, which allows it to use its own balance sheet for other means.
The financial performance supports this strategy. First-half revenue jumped 50% to £138.2m, while pre-tax profit quadrupled to £24.1m. With this pace of growth, I’d be very suprised to see the share price slump anytime soon, unless there was a serious new concern.
Not all rosy
Of course, I wouldn’t ignore the risks, particularly after such a strong share price performance.
My biggest concern is the health of the UK economy. Smaller businesses are particularly vulnerable to weak consumer spending and tighter credit conditions. A rough stint for the UK could reduce demand for loans while increasing defaults (the worst of both worlds).
There’s also the question of profitability. Although revenue expectations have improved, the company’s projected 16% margin remains below the 19% achieved in 2025. This suggests that rapid growth doesn’t automatically translate into stronger margins.
Yet I’m not overly worried about those factors when I weigh up the strong update today and the broader outlook. On that basis, I think the party’s far from over and I’m seriously thinking about buying the growth stock.
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Jon Smith has no positions in the shares mentioned.
This story originally appeared on Motley Fool
