So far, the Luceco (LSE: LUCE) share price is up almost 30% in 2021. And the stock has increased a staggering 250% in the last 12 months. Of course, past performance isn’t an indication of future returns.
The company has recently come onto my radar. But I don’t think I’ve missed the boat on this one. As a long-term investor I’d snap up some Luceco shares.
Luceco: an overview
Luceco manufactures and distributes wiring accessories, LED lighting, and portable power products. It supplies to trade distributors, retailers, wholesalers, and project developers. Some of its customers are B&Q, Amazon, and Screwfix.
Luceco sells a wide range of products that broadly fall into three brands. These include British General, which sells wiring devices such as switches and sockets. Luceco and Kingfisher Lighting sells energy efficient internal and external LED lighting and accessories. Finally, Masterplug sells cable reels, extension leads, surge protection, and adapter products.
The company has 2,000 employees worldwide. It also has a factory and product development centre in China.
I think the Luceco share price could rise further. What I like about the company is that it has a history of rising revenue. From 2013 to 2020, sales grew from £65.6m to £176.2m. And it’s a similar story with net profit, which increased from £1.3m to £24m over the same period.
This highlights two things to me. The first is that Luceco’s products are gaining traction. The second is that it’s gaining economies of scale. In other words, by increasing production it’s lowering costs, as demonstrated by the company’s growing profits.
The firm released a trading update earlier this month. It has seen strong momentum in the first four months of 2021. In fact, it states that it has “seen robust demand in all major sales channels, with revenue growth accelerating as expected against a comparative period weakened by the first wave of COVID lockdowns”.
The balance sheet looks strong as well. Luceco reported that it had reduced its net debt by £9.1m to £18.3m by the end of 2020. This places the company in a good position for future growth.
But I do have some concerns. Firstly, Covid-19 did take its toll on the firm. Since most of Luceco’s sales are from the UK, the lockdowns did impact revenue. It’s also seeing inflation in raw material and freight costs this year as economies recover from the pandemic.
This is expected to create some pressure on margins. The company believes this will be temporary but I’m wary it could be longer.
No one knows how long it will take to recover from Covid-19. So either Luceco has to bear the brunt of the increase in costs and take a hit on profitability, or it may have to increase the price of its products to maintain margins. I guess I’ll have to wait and see what happens.
I think there are some long-term growth drivers that could boost the Luceco share price. International sales are growing. The company is also well positioned to benefit from the move to a net zero carbon economy. It’s already selling energy efficient products. I reckon the stock could rise further, so I’d buy the shares.
Nadia Yaqub has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. 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.