This stock is still not expensive despite its 343pc gain
Revenue rose by 19pc year on year, with organic growth (which excludes the impact of acquisitions) amounting to 11.1pc. Operating profit, meanwhile, was up 18.4pc on the prior year, with the company's operating profit margin relatively unchanged at roughly 9.8pc, as it was able to successfully raise prices in order to largely offset the effects of elevated inflation.
The company enjoyed strong performance from its electric vehicles and consumer electricals segments during the year, which more than compensated for a weak performance in its medical division that the company expects to only prove temporary in nature.
Its operations in North America posted strong growth. Sales in the region rose by 35pc year on year, so they now account for 46pc of total sales, thereby making it the company's largest geographical region. Although the US economy contracted at an annualised rate of 0.5pc in the first quarter of the year, it is widely expected to bounce back over the coming months – and with Voltex's flexible manufacturing footprint, it appears relatively well placed to overcome a prospective rise in US tariffs.
Clearly, history suggests that increased protectionism is extremely likely to have a negative impact on global economic growth. This could weigh on the company's financial performance in the short run and may lead to elevated share price volatility as investors pivot from cyclical stocks to defensives. However, a likely end to sticky inflation and the implementation of further interest rate cuts across developed economies mean the long-term outlook for the company's operating environment remains upbeat.
While the company's net debt rose by 14pc to around $175m (£129.5m) in the past year, it still has a relatively modest net gearing ratio of 47pc. Net interest costs, meanwhile, were covered nearly five times by operating profits in its latest financial year.
These figures suggest Volex has the financial means to not only overcome an uncertain near-term outlook for the world economy but also to engage in M&A activity. Indeed, the company stated in its results that it has an active acquisition pipeline.
Trading on a price-to-earnings ratio of 13.6, Volex appears to offer good value for money on a long-term view and scope for an upward rerating. Its relatively modest market valuation is, of course, somewhat surprising given not only its recent share price rise, but also because it has produced a 341pc capital gain since being added to our Aim portfolio in August 2018.
Over the same period, the FTSE Aim All-Share index has slumped by 30pc. This means the stock has outperformed the wider index by 371 percentage points in just under seven years.
In Questor's view, Volex continues to offer capital growth potential and scope for further index outperformance over the coming years. While its share price could prove to be relatively volatile in the near term due to an ongoing uncertain geopolitical environment, its solid balance sheet and sound competitive position mean it is well placed to benefit from an upbeat long-term economic outlook.
Questor says: buy
Ticker: VLX
Share price at close: 364.5
Update: Totally
While Volex has posted exceptionally high returns since being added to our Aim portfolio, another of our holdings, Totally, has recently gone into administration. The healthcare services provider's shares have subsequently been cancelled from trading on Aim.
Although Questor previously highlighted that it considered Totally to be at the higher end of the risk spectrum due to its relatively small size and uncertain operating environment, the news is still hugely disappointing.
Moreover, it reconfirms the importance of diversification – particularly among smaller companies. In many cases, they lack the breadth of operations of larger businesses that are typically better able to withstand tough operating conditions, periods of economic difficulty and, of course, unforeseen events.
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