One FTSE 250 stock that caught my eye recently is Volution (LSE: FAN). Here’s why I think the stock could be set to soar to new heights in the coming months and years.
Ventilation business
Volution is a ventilation products and services business that caters to the residential and commercial sectors. Although ventilation doesn’t sound particularly exciting, there could be some lucrative times ahead, especially in the UK, which is where it makes most of its money. More on that shortly.
As I write, Volution shares are trading for 364p. At this time last year, they were trading for 309p, which is an 18% increase over a 12-month period. It is worth noting that many FTSE 250 stocks have suffered during the same period due to macroeconomic issues including rising inflation and interest rates.
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The investment case
Volution has an excellent track record of performance. Although I’m aware that past performance is not a guarantee of the future, I can’t ignore its excellent growth and progress in recent years. Its most recent full-year results for the period ended 31 July 2023 were announced last week. Revenue and operating profit increased by 6.8% and 7.7% compared to the previous year. Furthermore, its dividend per share jumped by close to 10%. The Volution share price spiked on the back of these results. The business has grown revenue and profit for the past three years in a row now.
Speaking of returns, Volution’s dividend yield stands at 2.6%. This is higher than the FTSE 250 average of 1.9%. However, I do understand that dividends are never guaranteed.
What makes me believe Volution could be set for good times ahead is regulation to decarbonise buildings. In simpler terms, making the indoor air cleaner. This is a legal requirement, at least in the UK, so this should offer the business more opportunities to boost its coffers. Furthermore, it is acquiring businesses in its Australasia segment, to boost growth there. Both these aspects for the future outlook for the business also contributed to the shares jumping last week, in my opinion.
From a bearish perspective, Volution shares look a tad pricey right now on a price-to-earnings ratio of 19. Any negative news or poor trading could send the shares downwards.
Furthermore, Volution may find its acquisitions don’t work out. When this happens, it can be a costly mistake to repair. This process can impact its balance sheet, investor sentiment, and returns too. Finally, rising interest rates could hamper demand. These higher rates are impacting new buildings and purchases. With a lack of both of these things, Volution could find short-term demand for its products decline somewhat.
A FTSE 250 stock I’d buy
To conclude, Volution looks like a good stock to buy to boost my holdings. I’d consider adding some shares when I next have some cash to spare.
To me, Volution looks a well run business with a solid track record of performance, a passive income opportunity, as well as growth prospects ahead too. Its growing presence in other markets, aside from the UK where it is a dominant player, is exciting in my eyes.
