Due to the recent market pull back, now more than ever I’m looking for quality stocks to buy trading at cheaper levels. Volex (LSE: VLX) is a stock I like the look of. Here’s why.
Power products
Volex is a manufacturing business that specializes in creating power products for many industries including healthcare, electric vehicles (EV), consumer electronics, and more. With nine manufacturing locations throughout the world, it has an international presence and worldwide reach.
Let’s start by taking a look at Volex shares. As I write, they’re trading for 320p. At this time last year, they were trading for 261p, which is a 22% increase over a 12-month period. The majority of my personal ‘stocks to buy’ list recently is made up of shares that have dipped due to market volatility so Volex is one of the exceptions here.
The bull case
Firstly, Volex’s recent positive momentum is linked to an exciting new partnership as well as positive results. It has increased its exposure to the burgeoning EV industry through an exciting new partnership with Tesla to provide charging solutions. This could help propel the business to new heights which could boost future earnings and investor returns.
Next, Volex has a good track record of growing performance. I can see that revenue and profit has increased for the past three years. For the year ending April 2023, revenue increased by 17%. However, I do understand that past performance is not a guarantee of the future.
Moving on, Volex shares look decent value for money with a price-to-earnings ratio of 16. I believe the share price could grow. In fact, HSBC analysts believe the same and have a price target of 510p per share for the business. In addition to this, Volex shares would boost my passive income with a dividend yield of 1.2%. I believe this could rise in line with the business. I do understand forecasts don’t always come to fruition and dividends are never guaranteed.
Quality stocks to buy come with risks
Although I’m bullish on Volex shares, there are some risks to note. Volex is big on acquiring businesses to boost its capacity and grow the business. The risk here is that acquisitions don’t always work out. It can then be costly to dispose of a business and this can impact its balance sheet as well as investor sentiment and potentially returns too.
Another risk for Volex is that of operational issues, which is a risk for all businesses producing products. For example, a subpar or defective product could impact performance, reputation, and investor returns.
To conclude, I like the look of Volex shares. I believe investors should consider the shares and I’m personally going to be adding some shares when I next have some cash to invest.
I believe the company has plenty of growth prospects and its recent partnership with Tesla is an exciting development. It should experience share price growth and could provide a nice passive income too.
