Shares in industrial engineering group Renishaw (LSE:RSW) rocketed 19% on Tuesday. This was after the company said it was putting itself up for sale.
In fact, while most FTSE 250 companies have seen their share prices struggle over the last 12 months, the Renishaw share price has seen impressive growth. The shares are worth more than double what they were this time last year, rising 102% to today’s price of 6,485p.
But what exactly is Renishaw and what does the company do? The company is not the most well-known among the FTSE 250 despite significant profit and market capitalisation growth in the last few years.
What type of business is Renishaw?
According to the company’s website, Renishaw is a “global, high precision metrology and healthcare technology group”.
Among the company’s innovative product list is precision measurement systems which help manufacturers maximise production output. In a nutshell, Renishaw’s technology helps businesses to automate their production lines.
Renishaw has also been able to apply its technology to the healthcare and science sectors. It has also pioneered a new metal 3D printing innovation.
The business has seen soaring profits in recent times. In its most recent earnings report, Renishaw said its adjusted profit before tax for the six months ended 31 December came in at £43.4m, up from £14.3m in the previous year.
The company said the improved profitability came as a result of its implementation of its ‘Fit for the Future’ strategy, which helped drive productivity and reduce costs.
Why is the Renishaw share price rising?
Renishaw announced on Tuesday it would be putting itself up for sale. Founders Sir David McMurtry and John Deer want to sell their 53% stake in the business.
Both men are in their 80s and in a statement said: “Our thoughts have increasingly turned to considering the future of our shareholdings in the company and how we can actively contribute to securing the future success of the business”.
The board has opened the sale process, but no buyers have initially been indicated. The market clearly responded well to the news, however. The shares shot to the top of the FTSE 250 risers on the day.
With a strong history of profitability and share price growth, many might see the Renishaw share price as a safe investment.
The company is a global leader in its field and operates with huge profit margins. Its founders met while employees at Rolls-Royce, and have strived to ensure Renishaw’s reputation for quality and good management.
With all that said, I still have my doubts about potential returns from buying Renishaw shares right now. Little is known about who may potentially buy the company at this stage and what direction those owners will take Renishaw.
The shares have traditionally been seen by investors as an expensive purchase. Based on its current share price, the shares trade on a current price-to-earnings ratio (P/E) of 135. Tuesday’s bounce may have skewed that figure, but it’s too expensive for me to consider buying the shares today.
I’ll be keeping an eye on the Renishaw share price over the next few months as the sale progresses though, and may revisit in the near future.
