Shares for the future: uncertainty drew me to this AGM

This is the one you may have been waiting for. I delayed re-scoring 4imprint Group (LSE:FOUR) until its annual general meeting, which I attended last week.  

4imprint is a supplier of promotional goods, branded freebies organisations give customers and employees, primarily in the US. In 2024, 60% of its revenue came from China via importers based in North America. US tariffs on Chinese imports have ratcheted up this year, briefly to levels that halted the trade in promotional goods. Although tariffs have subsided, this may only be a hiatus.

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Uncertainty is not a word I associate with 4imprint. Barring 2020, when we felt uncertainty about almost every business, 4imprint has been about as bankable as any company on the stock market. However, uncertainty drew me to the AGM.

Tariff trouble

Higher tariffs will increase costs, which may in turn cause 4imprint to raise prices to defend profits. Increasing prices when many customers are also experiencing rising costs might well reduce demand.

On the day of the AGM, 4imprint reported that revenue from January to April 2025 was similar to the same period in 2024. Gross profit margins had been strong.

Good news, perhaps, but tariffs were imposed late in the quarter. The ripples, or waves, will be felt over the summer. Then 4imprint may experience shortages due to a brief cessation of imports in April, as well as price rises. It seems likely the company is in for a rare year of contraction.

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4imprint and its predominantly North American suppliers are sourcing more products from outside China. The company estimates its contribution to revenue will drop 10% to 50% by the end of the year. But it is easier to find alternative suppliers in some categories, like clothing and bags, than others, like drinkware. The process is fraught with uncertainty, because tariffs can be levied on imports from any country.

There is also a doomsday scenario: the potential decoupling of the US and Chinese economies, should the relationship between the superpowers become more adversarial.

Chief executive Kevin-Lyons Tarr says 4imprint has contingency plans for as many scenarios as it can imagine, but he won’t be drawn on what they might be.

I rate 4imprint very highly, but imagine the more extreme scenarios would impact the business severely despite its many qualities.

4imprint: quality in normal times

Although revenue only increased 3%, well below par in the year to December 2024, the company lifted profit 9%, also below par. Profit grew faster than revenue because return on capital increased for the fifth consecutive year. It was not only high, but well above the 10-year average.

Double-digit revenue and profit growth and very high levels of profitability and cash conversion are explained in part by 4imprint’s scale.

With about 5% of the North American promotional goods market, 4imprint is the biggest distributor of promotional goods in the world’s biggest market. This means it is an important customer to its suppliers, IT and marketing costs are a smaller proportion of revenue than at rivals, and 4imprint can do things they can’t.

For example, TV advertising is too expensive for companies with small marketing budgets. 4imprint introduced TV advertising into its marketing mix alongside search engine advertising and catalogue sales in 2019. Coincidentally, it has experienced an improvement in earnings per marketing dollar spent from about $6 to about $8 and an improvement in profit margins (after tax) from 5% to 8%.

Scale is the result of 4imprint’s pioneering direct sales and drop shipment business model. Although it customises some apparel, 4imprint is primarily a marketplace, linking customers to distributors who prepare and ship the product. This reduces the risk and capital cost of large inventories, warehouses and manufacturing facilities.

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It is also the result of a customer-centric ethos fostered by Kevin Lyons-Tarr, who has run the business since 2004. By video on its website he guarantees customer satisfaction through a money back guarantee (or double the money if the customer can find the product cheaper elsewhere).

4imprint’s staff, located in folksy Oshkosh, Wisconsin, are the other faces of the business. Anecdotally, tenures are long, and 4imprint tells me attrition rates are less than 10%. The company’s golden rule is to “treat others as you would wish to be treated yourself”. When the pandemic struck and staff were not needed, the company paid and retained them so it could emerge in a stronger position.

Barring the doomsday scenario, 4imprint should emerge stronger than its direct competitors from this trade war. Depending on how long tariffs are an instrument of policy, though, they might at the same time damage the whole industry.

Scoring 4imprint

In normal circumstances it is a money-making machine. But we are not living in normal circumstances.

Tariffs have exposed 4imprint’s China dependency, which is why I have reduced its score by 1 point. More significantly though, despite recent falls, the shares trade at a relatively high multiple of normalised profit.

20 Shares for the future

Here is the ranked list of Decision Engine shares that score more than 7 out of 10. I review the scores at least once a year, soon after each company has published its annual report. The price scores are calculated using the share price prior to publication.

Generally, I consider shares that score more than 7 out of 10 to be good value.

Scores and stats: Richard Beddard. Data: ShareScope and annual reports
Click on a share's name to see a breakdown of the score (scores may have changed due to movements in share price)
Shares marked with an asterisk (*) have been re-scored, click the asterisk to find out why.

20 more speculative shares

Shares that score 7 or less out of 10 are more speculative, either because their share prices are high in relation to normalised profit or because I am less confident in the businesses than I should be (or both!)

Scores and stats: Richard Beddard. Data: ShareScope and annual reports
Click on a share's score to see a breakdown (scores may have changed due to movements in share price)
Shares in *italics* score less than 6/9 for business quality and may be removed

Richard Beddard is a freelance contributor and not a direct employee of interactive investor.  

Richard owns 4imprint and many shares in the Decision Engine. He weights his portfolio so it owns bigger holdings in the higher-scoring shares.

For more on the Decision Engine, please see Richard’s explainer.

Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard