4imprint (LSE: FOUR) shares might be the hottest property on the London Stock Exchange, its share price totally bucking the trend of UK stocks in recent years. They’ve doubled since 2022, tripled since 2020, and are up an astonishing 24 times since 2011. Such rapid growth has seen the firm cement a position on the FTSE 250 and make a lot of investors, myself included, question why on earth they haven’t bought in yet.
What does it do?
This company is not a household name, however, so let’s start with the basics. What does 4imprint do? The answer is it sells promotional merchandise. In layman’s terms, that’s products that come with a design or company logo on it. A family business ordering branded polo shirts for their staff, say. Or a church that wants to give out badges at a community event. And it’s not just small firms, 4imprint counts Fortune 500 companies among its clients too. The design on the things it sells is the “imprint” that gives the company its name.
Before getting to the investment case, it’s worth pointing out that this is not a British firm but an American one. It was founded in the States and does 97% of its sales there too. The UK and Ireland is a minor market by comparison, although the company does choose to list in London. It has an office in Manchester too that serves its customer base over here.
So what’s to like here? Well, 4imprint sells using a dropshipping model. The products are ordered online or by catalogue, then shipped straight to consumer. No shops or middlemen required. That means low investment in inventory and bigger margins.
The firm has low working capital requirements as most orders are paid by credit card, and the firm boasts of low capital expenditure in general. All of which results in a highly cash-generative business.
Industry slowdown
In spite of its rapid growth, there seems to be plenty of runway left too. The firm highlights an industry estimate of $26bn in US and Canadian markets across 26,000 distributors. 4imprint’s sales last year were just $1bn by comparison. Another point in 4imprint’s favour is that many of its competitors are very small enterprises, which tend to suffer more when inflation or cost-of-living issues are spiralling out of control.
As for risks, there is a current industry slowdown. The company said revenue growth was becoming “more difficult to achieve” and lowered expectations for the full year. Will these issues make that formerly remarkable growth a thing of the past? Perhaps. The shares are down 21% from a high in April at least.
As for my decision, there’s not enough in here for me to buy today. But this is one I’ll be keeping an eye on, especially if any further falls make the share price too tempting to miss out on.
This post was originally published on Motley Fool
