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A growth stock that recently joined the FTSE 100 index and could be set to increase is IMI (LSE IMI). Here’s why investors should consider buying the stock.
IMI shares rise
IMI is an international engineering company. It operates primarily in fluid controls and retail dispensing areas. Fluid Controls covers indoor climate products and services, including valves. The retail dispatch covers merchandising systems and beverage dispensers.
IMI stock has had a great run recently. As I write, they are trading at 1,520 pence. This time last year they were trading at 1,201p, up 26% over a 12-month period.
The investment case
IMI is well established in its market. However, the reason I’m excited about it as a growth stock is the role it could play in the race to net zero. It could help reduce emissions in the oil and gas industries, one of the largest markets that will need help reducing emissions. IMI can support decarbonization by creating smart heating and cooling systems and supporting the hydrogen economy. This could help boost IMI in terms of share price, performance and profitability for investors.
Currently, IMI stock appears to be a decent value with a P/E ratio of 14. I think there is room for the stock to continue its strong run lately.
Next, IMI stock would add to my passive income with a 1.8% dividend yield. This is not the highest, but I think it could also increase as the business grows. However, dividends are never guaranteed.
Finally, IMI’s recent performance has been strong in my opinion. For the year ending 2022, revenue increased 10% to £2.05 billion compared to 2021. This business momentum continued in the first half of 2023, when revenue increased 12% compared to the same period last year and operating profit shot up 21%. . However, I am aware that past performance is no guarantee of the future.
Despite my bullish outlook on IMI stock, there are risks that could impact this growth stock. Firstly, Rishi Sunak’s recent announcement to slow down net zero targets could dent demand for IMI’s green products and services. At worst, this could harm performance and profitability, dampening IMI’s growth aspirations.
From a profitability perspective, IMI has paid dividends over the past five years, but they were inconsistent. This is a bit discouraging and perhaps one of the reasons why the stock has flown under the radar of late. I would like to see some consistency in its shareholder returns policy, which could continue to boost the share price and its position at the top table of the FTSE 100.
A Growth Stock I Would Buy
I don’t have extra money to invest right now. However, next time I do, I’ll consider adding some stocks to my holdings. I think investors should also consider buying something.
In my view, IMI’s recent promotion to the FTSE 100, a good valuation, a passive income opportunity, a track record of performance and growth prospects make a strong investment case.