Today’s update from 4Imprint Group (LSE: FOUR) is encouraging. The directors reckon opportunity for the firm is “substantial and attractive” from here, which is a situation that rides on the back of an eight-year period of outperformance for the company and its shareholders.
Strong performance
I remember looking closely at the firm back in 2005 but decided not to invest – big mistake.
At the beginning of 2005, the shares stood around 196p, but I judged the firm’s business to be too cyclical and fragile to make a long-term investment. 4Imprint is a direct marketer of promotional products, such as pens, keyrings and T-shirts with client-company names and slogans printed on them. I thought clients would stop spending money on such knick-knacks at the first sign of an economic downturn.
In some ways, I was right and the shares were down at 105p by August 2009. However, since then I’ve paid a high price in missed opportunity for my judgment and prejudice. Today, the firm’s share price sits at 1,800p after a graceful, and almost uninterrupted, curve upwards, driven by growing earnings.
Clearly, 4Imprint is doing many things right and provides me with a fine example of how ‘off’ my judgments can be – multi-baggers, I find, often come from unexpected and perhaps counter-intuitive places. 4Imprint is cyclical, yes, but it’s growing too. I should have let the firm’s trading results and share-price momentum lead me into investing.
Good news now
The directors reckon they have confidence in the business model, saying it “proved its flexibility and resilience through a period of market uncertainty in the fourth quarter of 2016.” Trading during the first quarter of 2017 firmed up and the company saw revenue growth and order intake both up 9% compared to the equivalent period a year ago.
The outlook is good and the directors expect to hit full-year forecasts, which means earnings will balloon another 13% this year and 9% during 2018, according to a consensus from City analysts following the firm.
The forward price-to-earnings ratio runs at just over 19 for 2018, and the forward dividend yield is just below 2.9%. Forward earnings look set to cover the payout a little over 1.8 times. This is not a low valuation, but not outrageous when set against the business and share-price momentum that seems so bedded in.
Big in America
When I first looked at 4Imprint 12 years ago I made a misjudgement based on my prejudices about the firm’s line of business. However, during 2016, around 97% of the company’s revenue came from the US with the remaining 3% from UK and Ireland. My guess is that the market is perhaps more receptive to promotional items across the pond than here in the UK.
Bearing in mind the directors’ comments about the ongoing market opportunity, I wouldn’t bet against 4Imprint now. Assuming that an economic downturn is not imminent in the US, I think the shares could go a lot further and I’m likely to be a buyer of share-price dips.
