Up 26% in a year, here’s a growth stock investors should consider snapping up

Sumayya Mansoor takes a closer look at this exciting growth stock. Its share price has been on the up recently too. Is there more to come?

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One growth stock that recently joined the FTSE 100 index and could be set to surge is IMI (LSE IMI). Here’s why investors should consider buying the shares.

IMI shares on the up

IMI is an international engineering business. It primarily operates in fluid controls and retail dispense areas. Fluid controls cover indoor climate products and services, including valves. Retail dispense covers merchandising systems and beverage dispensers.

IMI shares have been on a great run recently. As I write, they’re trading for 1,520p. At this time last year, they were trading for 1,201p, which is a 26% increase over a 12-month period.

The investment case

IMI is well established in its marketplace. However, the reason why I’m excited about it as a growth stock is the role it could play in the race to net zero. It could help reduce emissions in the oil and gas industries, one of the biggest markets that will need help to reduce emissions. IMI can support decarbonisation by creating intelligent heating and cooling systems and supporting the hydrogen economy. This could help boost IMI in terms of share price, performance, and investor returns.

At present, IMI shares look decent value for money on a price-to-earnings ratio of 14. I believe there’s scope for the shares to continue their great run of late.

Next, IMI shares would boost my passive income with a dividend yield of 1.8%. This is not the highest but I think this could also increase as the business grows too. However, dividends are never guaranteed.

Finally, IMI’s recent performance has been solid, in my opinion. For the year ended 2022, revenue increased by 10% to £2.05bn compared to 2021. This trading momentum continued in the first half of 2023, when revenue increased by 12% compared to the same period last year and operating profit soared by 21%. However, I am conscious that past performance is not a guarantee of the future.

Despite my bullish outlook on IMI shares, there are risks that could impact this growth stock. Firstly, Rishi Sunak’s recent announcement to slow down the net zero targets could see demand for IMI’s green products and services dented. At worst, this could dampen performance and returns, slowing IMI’s growth aspirations down.

From a returns perspective, IMI has paid out dividends for the past five years but they were inconsistent. This is slightly off-putting and perhaps one of the reasons the shares have gone under the radar in recent times. I’d like to see some consistency in its shareholder return policy, which could then continue to boost the share price and its position at the top table of the FTSE 100.

A growth stock I’d buy

I don’t have any spare cash to invest right now. However, the next time I do, I’m considering adding some shares to my holdings. I believe investors should also consider snapping some up.

IMI’s recent promotion to the FTSE 100, a good valuation, passive income opportunity, performance track record, and growth prospects make a solid investment case, in my opinion.

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.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended IMI. 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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