After returning 600% in 5 years, 4imprint Group plc isn’t done growing yet

A 12% rise in annual sales shows there’s plenty of fuel left in the tank for 4imprint Group plc (LON: FOUR).

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Maker of promotional products such as company-branded pens and coffee mugs 4imprint (LSE: FOUR) posted a very respectable 12% year-on-year rise in revenue to $558m in full year results released this morning.

And a well-run business, healthy economic expansion in the US (its largest market), plus market consolidation all lead me to believe that this stock has plenty of room to continue the 600% returns posted over the past five years.

The fate of 4imprint is inextricably tied to the health of the US and Canadian economies, and the fact that GDP growth and business confidence remains robust in both countries bodes well for the company’s prospects in the medium term.

I’m also a big fan of the management team that has grown revenue by 92% since 2012, while growing operating profits by an even more impressive 164% in the same period. This intense focus on improving profitability has led to a very healthy balance sheet, with $21.7m of net cash at year-end. This safety net, together with the weak pound, provided for a 57% increase in sterling denominated dividends.

Looking ahead, there are also plenty of future growth opportunities as the market for promotional goodies is a highly, highly fragmented one. 4imprint is already the biggest player in each of its market, but the company estimates that roughly 90% of promotional distributors in the US bring in less than $2.5m in annual sales. 4imprint’s hefty margins and size give it plenty of room to crowd out these smaller competitors.

Given the health of the US economy, I reckon 4imprint’s very successful management team will continue to deliver sustained shareholder returns for years to come.

Who knew carpeting could be so rewarding

One of the few companies that has had a comparable history of stunning shareholder returns is flooring and carpet manufacturer Victoria (LSE: VCP), whose shares are also up 600% in the past five years.

Since 2012 the company has increased annual revenue from £77m to £255m by acquiring smaller competitors in the highly fragmented UK flooring market. And Victoria doesn’t just buy up these companies and rest on its laurels. Instead it assiduously cuts costs in order to raise margins and increase cash flow that it uses for further acquisitions.

In the past five years group EBITDA margins have risen from 7.31% to 12.66% through these actions, and with several major acquisitions recently completed there’s room for further improvement.

Once recent acquisition of note was the £9.7m purchase of two artificial-turf manufacturers based in Netherlands. These mark Victoria’s first entry into Europe and, in particular, the artificial grass market, which is growing at a rapid 15% clip annually.

While venturing into new territories isn’t without risk, a management team that has proven its ability to integrate major acquisitions gives me a great deal of confidence. The company’s smaller, but successful, Australian business also leads me to believe that the lessons learned there and in the UK can be applied equally well in Europe.

With Victoria’s shares trading at a relatively cheap 18 times forward earnings and considerable growth prospects ahead I reckon now could be the time for small cap investors to take a closer look at this flooring manufacturer.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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