This fantastic FTSE 250 stock turned 10 today! Is it a buy?

One FTSE 250 company has now been on the UK stock market for a decade and served up some fantastic returns for its shareholders.

| More on:
Young mixed-race woman jumping for joy in a park with confetti falling around her

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There was a reminder of a London Stock Exchange success story today (24 June). It’s Volution Group (LSE: FAN), the FTSE 250 ventilation product supplier that’s celebrating its 10th anniversary.

This is a stock that I’ve owned in the past but sacrificed to consolidate my portfolio. Given this milestone though, now seems like an opportune moment to take another look. Should I rebuy it?

Happy anniversary!

Volution is a leading supplier of ventilation products for residential and commercial buildings. On 23 June 2014, it listed at an offer price of 150p per share, implying a market cap of £300m. At market close on 21 June, the share price was 454p, giving a market value of £908m.

This means the stock has increased by 203% — an excellent return.

But there’s more because Volution is healthily profitable and pays dividends. Factoring those in over this period, the total shareholder return has been 272%. This smashes the equivalent FTSE 250 return of 71%.

Why has the stock done so well?

In the short run, the market is a voting machine. But in the long run, it is a weighing machine.

Warren Buffett

Solid profitable growth is arguably the number one thing that firms are judged on by investors over time. After all, who wants to put money into a business that’s posting losses indefinitely? That’s a one-way ticket to oblivion.

Over this period, Volution has delivered a compound annual growth rate of 13.3% in revenue and 12.7% in adjusted earnings per share. Nice. Last year, the operating profit margin was around 17%.

As part of its growth strategy, it has undertaken 21 acquisitions across the UK, mainland Europe and Australasia. The company is now present in 17 countries and generates 60% of its revenue from outside the UK. I like this geographic diversification.

CEO Ronnie George commented: “Our successful track record is testament to our strong corporate culture, differentiated business model, compounding growth strategy and consistent delivery over the last decade.

Strong environmental and regulatory tailwinds

The company’s purpose is to provide healthy indoor air sustainably. Today, 70% of revenue is derived from low-carbon products, a significant increase from 43% in 2014.

Over 30% of this revenue comes from heat recovery ventilation systems. These recover heat from outgoing exhaust air and transfer it to incoming fresh air. This reduces the energy needed for heating buildings in cooler climates, and should be a long-term growth market for the firm.

There’s also heightened global awareness around the importance of indoor air quality. For example, we now know the harmful effects of mould on health, which is driving increasing governmental regulation. So this is another growth tailwind.

My move

Looking forward, Volution’s energy-efficient building solutions are well-positioned to benefit from decarbonisation trends. However, the ventilation market is also competitive, with established players and new entrants all offering similar products.

Increasing competition could eventually squeeze profit margins, as could a spike in commodity prices, particularly steel. The construction industry is also cyclical.

Meanwhile, the stock is trading at 21.5 times trailing earnings, which looks a bit pricey to me. And the market’s only forecasting 4%-6% revenue growth up to 2026.

Weighing things up, I reckon there are better opportunities for my money right now.

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.

More on Investing Articles

Investing Articles

Down 23%! Should I buy more CrowdStrike shares for my Stocks and Shares ISA?

Sometimes bad news can be good news for long-term investors. But is that the case for CrowdStrike in relation to…

Read more »

Investing Articles

2 UK shares near 52-week lows I’m considering snapping up

These UK shares are loitering near, or at, 52-week lows. Are these prime opportunities for our writer to boost her…

Read more »

Investing Articles

Unilever: a passive income stock with potential for decades of dividend growth

Stephen Wright thinks Unilever can keep reducing its share count for years to come. And this should help make it…

Read more »

Middle-aged black male working at home desk
Investing Articles

Worried about retirement? I’d buy high-yield dividend shares to build wealth

The number of pensioners enduring poverty in the UK looks set to rise. Investing in dividend shares could help Britons…

Read more »

Investing For Beginners

2 boring but beautiful FTSE 100 stocks to add to my ISA

Jon Smith runs over a couple of FTSE 100 stocks that he really likes the look of, even though they…

Read more »

Investing Articles

Here’s how I could supercharge my wealth by snapping up the best dividend stocks!

This Fool explains how dividend stocks play a crucial part of her aspirations to build wealth, and details one pick…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Revenue up 10% and accelerated growth potential for this overlooked FTSE 250 company

Today's first-quarter update from this good-value FTSE 250 company keeps me keen on the stock as recovery and growth continues.

Read more »

Investing Articles

Here’s why I’m so bullish about the BT share price now

The BT share price shot up after FY results, and a couple of months on it's still up there. Might…

Read more »