The Motley Fool

This FTSE 100 stock just hit an all-time high. Should I buy?

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.

Scene depicting the City of London, home of the FTSE 100
Image source: Getty Images.

FTSE 100 member Spirax-Sarco Engineering (LSE: SPX) may not be a company that grabs the headlines very often but that hasn’t stopped this hyper-reliable growth company from setting record share price highs recently. Today’s half-year results suggest there’s no danger of business drying up anytime soon.  

“Strong recovery”

Spirax is actually three businesses rolled into one. The first two divisions — Steam Specialties and Electric Thermal Solutions — provide customers with products related to fluid control and electrical process heating. The third business — Watson-Marlow — supplies “virtually maintenance-free pumps“. 

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Positively, every part of Spirax showed excellent order book growth over the period. Indeed, CEO Nicholas Anderson reflected that the “strong recovery of global industrial production in the first half of this year, combined with exceptional COVID-19 vaccine related demand in Watson-Marlow, has supported strong organic sales and profit growth across all three businesses.” 

All told, revenue at Spirax rose 13% to £643.7m over the six months to the end of June. Pre-tax profit jumped 41% to £150m.

While far from being an income stock, it’s also worth noting Spirax hiked its interim dividend 15% to £38.5p per share today. Since any management team would be loathed to cut bi-annual payouts not long after raising them, I take this as an indication of just how confident the company is on its outlook.

As things stand, analysts have the company returning 129p per share in 2021. However, that equates to a yield of just 0.8%. So, while encouraging in itself, I wouldn’t be snapping up this stock if I were looking to live off the income generated by my investment portfolio. 

What’s not to like?

Taking into account today’s rise, SPX shares are up almost 45% over the last year. For a FTSE 100 juggernaut, that’s a brilliant result. The performance over the longer term is even more impressive. Since 2016, they’re up 250%. Even the market crash in March 2020 failed to disrupt this positive momentum for long.

Unfortunately, great stocks are rarely without friends. Before markets opened this morning, SPX shares were already trading at nearly 48 times earnings. Can such a valuation really be justified?

Well, the company definitely scores on the quality metrics I pay attention to. It generates consistently high returns on capital, for example. Margins are equally impressive too. In vast contrast to other FTSE 100 stocks, SPX also boasts a solid balance sheet with just under £193m in net debt (at the end of June). 

On the other hand, such a frothy valuation could make this a riskier play than it first appears. Any sign of a slowdown in economic growth and at least some investors may decide to bank profits. A new Covid-19 variant running riot could also cause disruption to Spirax’s supply chain. 

Buy this FTSE 100 stock now? 

All things considered, it’s really no surprise SPX continues to set new share price highs. This remains a great company in a niche market that consistently does all the right things. From a very long-term perspective, I’m inclined to think the shares will continue to perform for investors. 

Nevertheless, I’m not sure I’d make adding this company to my portfolio a priority right now. No stock is worth paying any price for, after all. In my opinion, the are a number of equally good companies available for far less elsewhere in the FTSE 100.  

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.