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Forget Royal Mail and Sirius Minerals! I’d buy this strong stock instead

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It’s always tempting to target down-on-their-luck shares such as Royal Mail and Sirius Minerals in the hope of bagging a bargain. But I wouldn’t. Such firms have already demonstrated their ability to under-perform and may continue to do so.

Instead, I’d rather invest in companies trading well with a growth strategy that’s working, such as IG Design (LSE: IGR). The firm designs, manufactures, sources and distributes products for celebrations, gifting, stationery and creative play, and it’s been doing very well indeed!

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Good trading

There’s an impressive multi-year record of rising revenue, earnings and shareholder dividend payments. And since the beginning of 2015, the share price has risen more than 780%. But with the market capitalisation today just above £500m, I reckon there’s plenty of scope for the company to further expand its international operations.

Today’s half-year results report reveals to us that in the six months to 30 September, around 60% of revenue came from the USA, 22% from the UK, 11% from Europe and the remaining 7% from Australia. Operations are truly global but there’s no denying the market in America is important. My guess is that culture across the pond is receptive to the company’s product output.

I like the business model. The company says it serves “the best” retailers around the world with a “complete” end-to-end service from design to distribution. The customer list includes some of the biggest supermarket, high street, fashion and online retailers globally. As such, IG is insulated from the operational challenges faced by its retail customers. It doesn’t really matter whether a retail customer business is an old established chain or an up-and-coming competitor. IG Design can supply them all.  

The figures in today’s report look strong. Revenue rose 21% compared to the equivalent period the year before, adjusted operating profit elevated 21% and adjusted earnings per share lifted 2%. Net debt came in down almost 14% at just over £86m. Trading has been robust and the directors pushed up the interim dividend by 20%, which I reckon signals confidence in the outlook.

Growth on the agenda

Chief executive Paul Fineman said in the report the firm has a “strong foundation” to meet its “ambitious” growth targets. He’s expecting organic progress driven by the “strong” sales pipeline and also expects growth via acquisition activity.  

I reckon IG Design serves a profitable niche in the market and has built up some long-standing relationships with many retail chains. We can see the success of the strategy in the firm’s trading record. However, as with many established growth opportunities, the firm’s success has not gone unnoticed by the investment community.

With the share price close to 639p, the forward-looking earnings multiple for the trading year to March 2021 is just over 18, and the anticipated dividend yield is a little under 1.9%. That’s not a bargain valuation, but I reckon the growth story could have much further to run.

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Kevin Godbold has no position in any share 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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