FTSE 250 incumbent 4Imprint Group (LSE: FOUR) has been on a great run in recent years. In fact, if I had purchased shares when they were first listed in 2003, I could have made a 10,000% return based on today’s price! It also has a great record of dividend payouts, which would have boosted my passive income too.
I believe there is still scope for me to buy 4Imprint shares now and continue to make decent returns, albeit perhaps not with the same rate of return mentioned earlier. Here’s why.
4Imprint is a British direct marketing business with a focus on promotional products. These include personalised clothing, mugs, pens, and lots more. It sells its products throughout the UK, Ireland, and North America.
I mentioned 4Imprint’s long-term share price activity earlier, which is nothing short of impressive. So what’s happening with the shares more recently? Well, as I write, they’re trading for 4,500p. At this time last year, they were trading for 2,991p, which is a 50% increase over a 12-month period. In this 12-month period 4Imprint has outperformed the FTSE 250 index by some distance.
Pros and cons
An argument could be made that such an excellent rate of return over the past 20 years means that 4Imprint shares have hit a ceiling. I think not.
To start with, 4Imprint’s most recent full-year results for 2022 showed excellent growth. This tells me it still has good momentum at present. Revenue rose to $1.1bn and profit reached $103.7m, both figures up substantially from 2021. Furthermore, it continues to attract new customers, a 17% increase, in fact, compared to 2021.
In addition to 2022 results, 4Imprint has shown great resilience to bounce back from a tough period during the pandemic. Since that time, it has reported growth in revenue and profitability and reinstated its dividend. I am conscious that past performance is not an indicator of the future. I am keen to see 2023 half-year results in a couple of weeks.
Speaking of dividends, 4Imprint shares would boost my passive income stream nicely. At present, the dividend yield stands at an enticing 6.6%. This is higher than the FTSE 250 average yield by some margin. I am aware that dividends are never guaranteed and can get cancelled. In fact, during the pandemic, 4Imprint did cancel its dividend, as did many other businesses.
A potential risk to consider is that 4Imprint shares could be viewed as a tad expensive at present. On a price-to-earnings ratio of 20, the shares could fall if future earnings were less impressive than in recent times.
In addition to this, 4Imprint’s board warned in May that its primary market, the US, could see some pull back in terms of performance. This could impact the share price, as well as investor sentiment and returns.
A FTSE 250 stock I would buy
Considering all things, I believe 4Imprint is still a good option to add to my holdings. I will buy some shares when I have the spare cash to do so.
Despite 4Imprint’s valuation, the passive income opportunity, recent performance growth, and position in its respective market space all help me make my decision. In addition to this, its enviable rate of return in recent years is hard to ignore.
This post was originally published on Motley Fool
