FTSE 250 incumbent Volution Group (LSE: FAN) may not be a recognizable brand. However, it not being a so-called big name doesn’t matter to me. I think the business looks like a potentially good investment.
Here’s why I’d be willing to buy some shares when I next have some investable cash.
Ventilation specialist
The business supplies ventilation products to residential and commercial customers. Some of its popular brands include Ventair, Diffusion, and Airtech, to name a few. From a geographical view, the firm operates across three segments: UK, Europe, and Australasia.
Volution shares have meandered up and down, like many FTSE 250 shares, due to economic turbulence. However, they’re up 1% over a 12-month period, from 412p at this time last year, to current levels of 419p.
Pros and cons
From a bullish view, the business has an excellent track record of performance. This includes growing margins, stable revenues, and profitability, as well as excellent free-cash flow to prop up a very strong balance sheet. However, I do understand that past performance is not a guarantee of the future.
Breaking down Volution’s most recent update, a half-year report released on 15 March, I was impressed. Some key takeaways for me were that revenue and profit before tax increased by 6.3% and 9.9% compared to the previous year.
Plus, despite inflation, the business managed to increase margin levels by over 1%. Also, Volution’s earnings-per-share shot up by 10.5%. Finally, the business hiked its interim dividend by a whopping 12%.
Speaking of returns, a dividend yield of 2% is enticing, and I reckon this could grow in line with the business. However, I do understand that dividends are never guaranteed.
Finally, keeping an eye on growth, I reckon there’s a potentially juicy opportunity for the business to progress. This is linked to new regulations to decarbonise buildings, especially in the UK, which is the firm’s largest territory based on revenue.
From a bearish perspective, the shares are a bit pricey on a price-to-earnings ratio of 20. Could any negative news or trading send the shares tumbling? Furthermore, is growth already priced in? Possibly so.
Another risk I’ll keep a close eye on is Volution’s propensity for acquisitions. To date, these have served it well, and helped it grow nicely. However, even one acquisition that doesn’t work out could have a disastrous impact on a firm’s balance sheet, shares, returns, and overall sentiment.
Wrapping up
I reckon Volution is a bit of an overlooked stock on the FTSE 250 index. Let’s be honest, this is probably because ventilation isn’t exactly exciting or cutting edge to most.
However, the investment case for me looks too good to ignore. This includes a great profile, track record of performance, growth prospects, and a passive income opportunity. All of these aspects are on my tick list when I’m assessing stocks to buy to help me boost my wealth.
