1 magnificent FTSE 250 stock I’d buy right now!

Volution Group (LSE:FAN) is seizing upon a very large market opportunity. Here’s why I’d buy this compelling FTSE 250 stock today.

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I have some spare cash to invest this month and I’ve been scouring the FTSE 250 for shares to add to my portfolio. There are lots of opportunities to choose from, with the index 20% lower than it was 18 months ago.

But Volution Group (LSE: FAN) has caught my eye, having everything I’m looking for in a stock.

What does the firm do?

Founded in 2002, Volution manufactures and supplies ventilation products to residential and commercial construction markets in the UK, Europe and Australasia. That includes everything from simple extractor fans to more complex whole-dwelling ventilation systems. The company’s mission statement reads: “Our purpose is to provide healthy indoor air, sustainably.”

The firm has successfully expanded into Europe and Australasia via a number of bolt-on acquisitions. The group is now made up 19 key brands across three geographic regions. The UK accounts for around 38% of overall sales, Europe slightly less at 36%, with Australasia making up most of the rest.

Most of these markets remain fragmented, making them ripe for further consolidation. And Volution’s strong balance sheet should allow it to strategically acquire market share.

Strong results

Yesterday, the company reported strong results for the six months to 31 January. Revenue rose 8.5% year on year to £162.3m, while adjusted operating profit was up 7.1% to £34.2m. Pre-tax profit rose nearly 6% to £22.6m. There was organic growth in all three geographic regions.

Chief executive Ronnie George, who’s been at the helm since 2012, noted that homeowners and landlords have been addressing mould and condensation issues. Rising energy bills caused people to reduce heating, causing air quality issues. This helped its UK residential arm grow revenue by 16% during H1.

At 21.1%, the firm’s adjusted operating margin remained above the 20% target set by management. And the interim dividend was increased 8.7% to 2.50p per share. The yield is modest at 1.86%, but the payout has compounded at a five-year growth rate of 12%.

Looking forward, management noted that inflationary and supply chain challenges are easing. And with homeowners, landlords and tenants increasingly aware of the dangers of under-ventilated properties, Volution’s future looks bright to me.

The stock now trades at 17 times consensus forecast earnings. It should be noted that this is higher than the index average, which could present a level of valuation risk. But at 394p, the shares do remain 30% off the 560p price reached back in September 2021.

A recent report from Imperial College London found that the UK’s 28.6m homes are among the least energy efficient in Europe. They lose heat up to three times faster than on the continent, which makes people colder and ultimately poorer.

This situation will need to be properly addressed by government at some point, particularly as homes account for 30% of the UK’s total greenhouse gas emissions. Again, all this should benefit Volution, with its market-leading range of energy-efficient residential heating systems.

I’m buying the stock

Volution is closely aligned with powerful environmental, health and regulatory trends. It’s growing nicely, both organically and via acquisitions, and there’s a rising dividend underpinned by strong financials.

As a result, I’m ready to tuck some shares away in my ISA for the next few years.

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.

Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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