Are these FTSE 250 growth stocks getting too expensive?

Bilaal Mohamed explains why now may not be the best time to buy these FTSE 250 (INDEXFTSE:MCX) growth stocks.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Believe it or not, Spirax-Sarco (LSE: SPX) isn’t the name of a Russian satellite, or even a character from the original Star Trek series, but in fact a UK-based multi-national industrial engineering group. I know what you’re thinking – do we still do industrial engineering in this country?


The answer is a resounding yes, and there is a global demand for it too. Despite the name, Spirax-Sarco Engineering comprises two world-leading engineering businesses: Spirax Sarco for steam and electrical thermal energy solutions, and Watson-Marlow for niche peristaltic pumps and associated fluid path technologies.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

The Cheltenham-based group serves a wide range of industries, and benefits from a great diversity of end markets and customers. I see this as one of the core strengths of the business as it insulates it from much seasonal and cyclical demand. For example, in 2016 the company’s largest industry segment, food, accounted for no more than 16% of sales and no single customer in any industry accounted for sales of greater than 1% of the group total.

Excellent balance

Spirax also has an excellent balance between higher-growth end markets and those that are less cyclical and more defensive in nature. Last year, around 50% of total revenues were derived from these defensive end markets, including food & beverage, pharmaceutical & biotechnology, healthcare, chemicals, buildings (heating, ventilation and air conditioning), water & wastewater, and power generation. The remaining 50% being derived from maintenance and repair sales, supported by end users’ operational expenditure budgets.

Spirax has performed exceptionally well over the years through consistently rising earnings as well as an enviable 49-year record of dividend growth. Our friends in the City are expecting this to continue with an anticipated 21% rise in earnings for the current year to December, followed by a further 12% improvement in 2018.

But I’m getting increasingly concerned about the valuation. The share price has advanced 25% over the last 12 months, recording new highs earlier in the year, and leaving the shares trading on a high earnings multiple of 27 for 2017. I’ve no doubt the business will continue to grow, but now is not the best time to buy the shares, in my opinion.

Strong financial position

Another mid-cap firm that I believe is beginning to look rather expensive is Renishaw (LSE: RSW). The Gloucestershire-based group is one of the world’s leading engineering and scientific technology companies, with expertise in precision measurement and healthcare.

Full-year results revealed record levels of revenue of £536.8m, with adjusted pre-tax profits of £109.1m, representing a 25% increase year-on-year. The group is in a strong financial position and continues to invest in the development of new products and applications, along with targeted investment in production and sales & marketing facilities around the world.

Again, I’m increasingly concerned about the business’s valuation. The shares have continued to surge ahead this year, soaring 70% since January, leaving them trading on a lofty P/E rating of 32.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Renishaw. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

More on Investing Articles

Lady researching stocks
Investing Articles

Here’s why I’m avoiding this dirt-cheap dividend penny stock!

A dirt-cheap, dividend-paying penny stock with a vast presence sounds good on the surface. This Fool isn't convinced, however.

Read more »

Asian Indian male white collar worker on wheelchair having video conference with his business partners
Investing Articles

These top income stocks look dirt cheap to me. I’d buy them now

I'm taking advantage of today's stock market weakness to load up on top value income stocks

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

Excessive stock trading erodes long-term gains!

Are high trading fees eating away at your returns? Research suggests that excessive stock trading could be to blame.

Read more »

Young woman sat at laptop by a window
Investing Articles

Pearson shares are up 25% since the market correction! Should I buy now?

Why have Pearson shares rallied since the market correction? This Fool looks at the educational provider in more detail and…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Recession ready! I’d buy these FTSE 100 stocks for tough times

Jon Smith explains some of his favourite options for defensive FTSE 100 stocks that he's thinking of adding to his…

Read more »

A graph made of neon tubes in a room
Investing Articles

Down 45%, are these UK shares no-brainer bargains right now? 

Several top UK shares are down significantly and two companies on my list look like possible attractive buys right now.…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

I bought these 2 FTSE 100 shares two years ago. Should I now add to them?

Andrew Woods asks if he should add to his current holding in these two FTSE 100 shares ahead of a…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Has the Deliveroo share price bottomed?

The Deliveroo share price (LON:ROO) is down nearly 60% in 2022. Paul Summers asks whether it's now hit bargain territory.

Read more »