UK stock 4imprint (LSE: FOUR) is a “leading” international marketer of promotional products, mainly in North America. We’re talking about stuff such as giveaways, embroidered apparel, trade show displays and logo’d business gifts.
Today (19 January), the company released a promising trading update anticipating revenue up 16% for 2023 and profit before tax almost 35% higher.
The outcome was “slightly above the upper end of the current range of analysts’ forecasts”. That kind of statement is music to the ears of investors.
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A long record of success
Right now, the business looks like it’s trading in a sweet spot. Economies have been depressed for some time. But even under those conditions, 4imprint has been trading well and growing its profits.
What will the enterprise be capable of delivering if general economic conditions improve? The situation looks promising to me. Meanwhile, we’ll get more information with the final results due on 13 March 2024.
The market liked today’s news and the stock is around 17% higher as I type. But scoping back, the upwards progress extends a much longer positive trend – this company has been delivering the goods for its shareholders for a long time.
Such progress begs the question, is it too late to get involved with the shares? Not for me. Proven performers are sometimes worth putting on close watch with a view to finding an opportune entry point.
The stock may be perky today, but reversals and volatility are common for most shares. Whereas values may be relatively stable, share prices are often not. There can be opportunity for investors in that fact of life.
Meanwhile, with the share price near 5,430p, the forward-looking earnings multiple is well into double digits. However, 4imprint scores well against quality indicators. For example, the operating margin is running at almost 10%.
Quality merchandise usually costs more, and that includes stocks. Although I wouldn’t chase the share price higher today while all the excitement surrounds the company. For me, this opportunity is for patient investors willing to research, watch and wait for a better entry point.
A positive outlook
The directors said they’re “confident” about the forward-looking prospects of the business. Meanwhile, 2023’s trading success enabled the firm to boost its cash and bank deposits by almost 21%.
The strong balance sheet with its net cash position is one of the attractions for me. However, it’s worth remembering that even well-financed businesses can run into operational difficulties from time to time.
There’s no getting around the cyclical sensitivity of the operation. It was hit hard during the pandemic, for example. So the rich-looking valuation does add to the risks when and if the profits of the business turn down again.
Nevertheless, the worst thing I can do is exclude stocks from my investment universe just because they’re doing well! Good trading and higher valuations tend to go hand in hand. For me, 4imprint is worth watching with a view to researching and potentially buying some of the shares to hold for the long term.
