After its robust results earlier this week, I expected AIM stock and paper products manufacturer IG Design (LSE: IGR) to keep rising. The opposite has happened. Its share price actually fell by 5% yesterday.
There are two ways I can interpret this. One, that this is a market aberration that will iron itself out. It could even be a sell-off in shares after its share price rose 2% on the day of the results release. Two, that something in the results’ fine print is spooking investors. So what has actually happened?
IG Design’s revenues grew by a whole 40% for the full year ending March 31, compared to the year before. Reported numbers saw it swinging to a pre-tax profit of $14.7m from a small loss during the year before. Its reporting currency has also switched to dollars following the acquisition of CSS Industries last year.
There are more reasons to be bullish on IG Design shares too. One of them is that even in an otherwise difficult year for manufacturers of non-essential products, it grew across all its categories.
Its biggest segment, celebrations, which covers products like greetings cards, wrapping paper and crackers, grew by 11%. There was also a significant uptick in the craft and creative play segment as demand for at-home entertainment took off during the lockdown.
Fortunate acquisition for the AIM stock
Besides some genuine demand increase, IG Design’s numbers have also been bumped up by its acquisition of US-based CSS industries. If the acquisition had not been made, the company’s revenues would have shrunk by 5% during the year. In other words, I think it got lucky with the acquisition and its timing, which was just before the pandemic. But I do not want to take away from the fact that it was probably a very good strategic decision as well.
Pandemic and prices could play spoilsport
It is also quite positive about its future, but I am still cautious for companies that cater to non-essential spending. There has been a lot of government support to keep the economy going so far. But if the pandemic continues, I am not sure how long this can carry on. And non-essential spend will be the first to be hit.
Also, it has mentioned inflation as a concern for 2022. While raw material and freight costs have risen for it already, the company said that so far, they have had limited impact. There is near consensus on rising prices across companies I have looked at recently.
My takeaway for the IG Design share price
However, there are differing views on whether inflation will continue to rise. If it does not, IG design’s challenge will go away on its own. If it does, the company sounds confident of its ability to manage it. Also, there is a higher chance that the risk of a pandemic return is lower now.
I think AIM stock is definitely one to consider, I do not see anything in the fine print that would worry me.