A revenue lift of 33% makes me bullish about this FTSE 250 stock

FTSE 250 stock Electrocomponents (LSE ECM) looks perky today on the release of the company’s half-year results report. It’s up nearly 5% as I write. And at 1,193p, it’s more than 60% higher than it was a year ago.

Something’s going right for the distributor. And it’s not just a recovery from a year overshadowed by the pandemic in 2020. In fact, Electrocomponents sailed through last year with just a small dent in profits.

Decent operational progress

I think the strong move up in the share price reflects decent operational progress in the business. And City analysts predict robust, double-digit advances in earnings for the current year to March 2022 and for the year following that. But estimates can change if conditions alter for the business, so I’m not going to make investment decisions based only on those assumptions.

But I like several things about this business. The first is its wide international reach. The company describes itself as “global omnichannel provider of product and service solutions for designers, builders and maintainers of industrial equipment and operations.”  It stocks more than 650k industrial and electronic products and offers around 3m more that it doesn’t hold on its shelves. And my guess is the firm’s many customers from more than 80 countries appreciate the choice. The directors reckon the business enjoys a “market-leading reputation for service excellence.”

And evidence suggests that claim is likely true. For example, a second feature I like is the company’s multi-year record of steady, incremental annual growth in revenue, earnings, operating cash flow and shareholder dividends. I can’t think of a better way for a company to verify the growth of its business than to post good financial results.

So I find it encouraging to see more decent figures reported today. For the half-year to 30 September, revenue lifted by 33% compared to the equivalent period last year. And adjusted earnings per share shot up by 80%. The directors pushed up the interim dividend by 5%.

A positive outlook

Looking ahead, the company said momentum across all its trading regions continued into the first five weeks of the second half. The directors reckon ongoing growth in market share and strength in underlying markets is driving the progress.

However, it isn’t easy for the company to execute its operations at the moment. The external environment is “very challenging” because of supply chain difficulties causing shortages. And inflation is pressurising freight and labour costs. And I reckon there’s potential for such issues to derail progress and cause the business to miss its expectations for earnings. Indeed, nothing is certain when it comes to investing in stocks.

Meanwhile, the forward-looking earnings multiple is just over 24 for the trading year to March 2023. And the anticipated dividend yield is around 1.6%. That’s not a bargain valuation and, as such, adds more risk for investors. But it shows Electrocomponents has been recognised by the investment community for its long record of growth.

However, I reckon there’s likely to be more to come from this business because I’m bullish about the potential for general economic growth. So I’d aim to buy some of the shares on dips and down-days to hold for the long term as the growth story hopefully continues to unfold.