If I had to put together a list of top UK stocks for investors to consider buying for the long term, AIM-listed Volex (LSE: VLX) would most certainly be on it.
It’s an under-the-radar company that specialises in the manufacturing of products for the electric vehicle (EV), data centre, and healthcare markets.
Here, I’m going to discuss why I’m excited about this UK growth stock. Let’s plug in.
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Excellent trading update
There are three main reasons I’m bullish on Volex shares today. The first is that the company’s performing well at the moment.
In a trading update posted this morning (18 April), the company said revenue for the year ended 31 March is expected to be around $900m, up 25% year on year.
Now I’ll point out that this increase in the top line was the result of both organic growth and acquisitions.
However, the company did note that in the second half of the financial year, it saw continuing increases in organic revenue, thanks to its leading positions in industries with structural growth characteristics (eg data centres and medical technology).
As for operating profit, Volex said this is likely to be “slightly ahead” of analyst expectations. It also noted that operating profit margins improved in the second half of the year.
Overall, it was a very good update. And this is reflected in the company’s share price. As I write, the shares are up about 7% on the day.
Long-term growth story
The second reason I’m bullish is that the company has positioned itself well for long-term growth. Thanks to its exposure to fast-growing markets like data centres (forecast to grow by around 10% a year between now and 2030) and EVs, revenues should continue to rise in the years ahead.
The Group’s presence in attractive markets and its well-invested global manufacturing base offer significant growth opportunities.
Volex full-year trading update
The potential for long-term revenue growth is one of the first things I look for in a stock. That’s because revenue growth drives earnings growth which, in turn, drives share price growth.
It’s worth noting here that Volex is targeting revenue of $1.2bn by the end of FY2027. That would represent top-line growth of 33% in three years, which is decent.
Very low valuation
Finally, the company has a really attractive valuation right now. Currently, analysts expect it to generate earnings per share of 36.5 cents for the year ending 31 March 2025. At today’s share price and exchange rate, that equates to a forward-looking P/E ratio of just 10.5.
At that valuation, I see room for substantial share price gains when conditions in the UK stock market pick up. I think the stock could be more than 50% undervalued at present.
An exciting opportunity
Now of course, there are risks here. One is that the industries the group operates in can have their ups and downs. EVs are a good example.
While the long-term growth story associated with EVs is very attractive, the market’s been quite weak over the last 12 months, or so. This has led to lower EV-related sales for Volex.
Overall though, I think this stock has bags of potential. Given the potential, I’ve made Volex one of my larger UK stock holdings.
