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Conditions on the London stock market look promising to me. And it’s a good time to look for stocks that have the potential to double my money in a reasonable amount of time. In fact, I found a UK stock that could do it.
the company is alumasc (LSE: ALU). It supplies a range of building-related products, for water management, roofing and other accessories.
In October, he delivered a solid business update. Volumes and margins had been “strong” and ahead of the equivalent period one year earlier. Transportation and material costs had been “stabilizer”. But energy costs and currency exchange rates remained volatile. However, the directors expect the business to benefit from a “solid platform for long-term growth”.
Vulnerable to economic downturns
I would classify the business as vulnerable to the effects of general economic downturns. But the directors seem confident that Alumasc has strong brands and strong positions in each of its niche markets. And they expect the business to do well in the coming years.
Meanwhile, city analysts are predicting that earnings will likely rise about 4% in the business year to June 2024. And in the current economic environment, I see that small increase in earnings as a positive.
But the valuation seems stingy. With the share price nearing 155 pence, the prospective earnings multiple is almost six for the business year to June 2024.
And one of the reasons for the downgrade could be the multi-year record of volatile earnings. In fact, from one year to the next, earnings are likely to plummet as much as they shoot up. For example, they increased by a triple-digit percentage in the 2021/22 business year due to the backlog of orders caused by the pandemic. And the stock price shot up almost 300% after the 2020 Covid crash.
Encouraging contracts won
But over the past year, the stock is down just over 30%. And there is a lot of potential value on offer at the current valuation. In fact, the company’s track record of big swings in earnings and stock price is part of the reason I see potential for the stock to double.
At this time, the valuation is low and the trade is good. However, I am also encouraged by the recent award of contracts to supply Why access and drainage products “through a series of projects for airports and seaports in Hong Kong, India, the Philippines and Singapore.”
Chief Executive Paul Hooper said these victories demonstrate the global reputation of Gatic products. and underline the “significant” continued opportunity to supply large international infrastructure projects.
If the additional earnings increase future earnings, investors may increase the valuation. And a reassessment by the market could work together with rising earnings to double the share price from where it is now. After all, a reassessment of 12 times earnings would not seem excessive to me.
However, positive results are not guaranteed. The business may still have more operational difficulties and you may even lose money on the shares.
However, if I had additional cash to invest now, I would delve into this opportunity with an eye toward buying the shares to hold as operating progress unfolds in the coming months.
