The FTSE 250 has had a tough few years. While the FTSE 100 powered to record highs, the mid-cap index has lagged, weighed down by its heavier reliance on the domestic economy. And yet, the UK’s flagship growth index is still home to some genuinely quality businesses now trading at unreasonably cheap valuations.
Could this be one of these incredible buying opportunities?
A cloud communications giant hiding in plain sight
Gamma Communications (LSE:GAMA) is a leading provider of Unified Communications as a Service (UCaaS) to small- and medium-sized businesses across the UK, Germany, Spain, and the Netherlands.
As a quick crash course, the company helps other businesses ditch their outdated legacy phone hardware and move their communications into the cloud with voice calls, data, mobile, and contact centre tools, all bundled into a single subscription.
Sadly, the share price has fallen roughly 40% since the start of 2025. So much so that today, the shares trade at an earnings multiple of just 13 times.
But that’s unusually cheap for a business still growing revenues and underlying profits at a double-digit rate. And it seems several institutional analysts agree, with teams from Deutsche Bank, Barclays, and Berenberg all issuing Buy recommendations with an average share price target of around 1,400p.
Compared to where the stock’s trading today, that implies a potential 50%+ gain could emerge in the next 12 months!
So what’s driving such confidence?
The growth story analysts are betting on
Gamma’s aiming to replicate its dominant UK UCaaS model in Germany, a market where cloud adoption among businesses is still around 20% compared to far higher levels in the UK.
Its recent German acquisitions of Starface and Placetel gave it over 500,000 cloud PBX seats in Germany almost overnight. And if Germany follows the UK’s migration curve, the revenue opportunity’s enormous.
That obviously sounds rather promising. So what could go wrong? The reason why Gamma shares have struggled of late is that its core UK business is facing genuine near-term headwinds.
The migration of customers from legacy SIP telephony-to-cloud systems has slowed due to weak macroeconomic conditions, creating a gross profit drag of around £1.5m per half-year running into 2026.
There is also pricing pressure in its Enterprise fibre division, where intense market competition is forcing Gamma to discount contracts at renewal. And that’s creating another £3m gross profit drag.
These aren’t business-threatening issues, but they are suppressing near-term earnings. And with the outlook on the UK economy still looking quite soft, these headwinds may prove to be more stubborn than Gamma would like.
The bottom line
All things considered, Gamma Communications looks like a fundamentally sound business at a genuinely cheap valuation currently weighed down by cyclical factors.
There’s a big question mark over when UK market conditions will eventually improve. But with a pan-European growth opportunity on the horizon, the stage appears to be set for an impressive comeback once the tide turns.
That’s why I think this FTSE 250 stock could indeed be worth mulling today.
Should you invest £5,000 in Gamma Communications Plc right now?
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And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Gamma Communications Plc made the list?
Zaven Boyrazian does not hold any positions in the companies mentioned.
