To me, it looks like a bull market may gather momentum for UK growth stocks.
I can feel it in my water, as my grandad used to say!
General economic conditions appear to be improving, and circumstances may be shaping up well to support progress for businesses and shares.
Should you invest £1,000 in Luceco Plc right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Luceco Plc made the list?
So I’m working hard to identify promising UK growth stocks for my portfolio.
Robust earnings
For example, in March, Luceco (LSE: LUCE) released a reassuring set of full-year results. The company supplies wiring accessories, electrical vehicle (EV) chargers, light-emitting diode (LED) lighting, and portable power products.
“Profitability at the upper end of expectations despite challenging markets. Continued growth and strong cash generation”, the report trumpets.
Meanwhile, the figures show revenue up by 1.3% during 2023 and basic earnings per share higher by just over 50% — impressive!
The directors said the strong performance of the business continued into 2024, and the order book is ahead compared to a year earlier.
Chief executive John Hornby is upbeat about the outlook. Several “exciting” product developments are in progress providing good medium- and long-term opportunities for growth. On top of that, the company is focused on its bolt-on acquisition strategy.
It recently bought a UK company called D-Line, the supplier of cable management solutions.
Hornby said D-Line’s product range is a natural fit alongside Luceco’s existing categories. The business has built up a strong brand in the UK and internationally. Hornby is “particularly excited” about using D-Line’s North America operation to support Luceco’s growing business there.
City analysts have pencilled in double-digit percentage advances in earnings for 2024 and 2025. So that qualifies Luceco as a growth stock even though it’s not guaranteed the company will make its estimates.
A fair valuation?
Meanwhile, the balance sheet looks robust, with just modest levels of net debt. But one of the biggest risks for long-term shareholders is that the business serves cyclical markets. So there may be plenty of volatility ahead.
One recent example is the apparent softening that seems to be happening in the EV market. Who knows how far that trend will go? If EV sales remain suppressed, the situation could affect Luceco’s growth strategy.
Nonetheless, the valuation looks reasonable given the robust estimates for earnings growth. With the share price near 150p (8 April), the forward-looking price-to-earnings multiple for 2025 is around 11. There’s also an anticipated dividend yield running near 3.6%.
I don’t expect the company to ever attract a racy valuation because of its vulnerability to general economic cycles. But despite the uncertainty, the dividend could be handy income to collect while waiting for the business to hopefully grow in the coming years.
For me, it’s a good time to double-down with deeper research into Luceco’s business. My aim would be to add a few more of the shares to my portfolio to hold for the long term.
