Spirax-Sarco (LSE:SPX) is the most expensive stock on the FTSE 100 based on share price. Should I buy the shares for my holdings? Let’s take a look.
Full steam ahead
Spirax-Sarco is an engineering business that specialises in steam management systems and tech, as well as other related pumps and fluid path tech. The majority of its business comes from commercial customers.
As I write, Spirax shares are trading for 12,445p, making them — as I said — the most highly-priced shares on the FTSE 100 index right now. The second closest shares are trading for just over 10,000p.
Spirax shares were actually trading for 16,000p at the start of the year and have dropped over 20% to current levels in approximately four months. This time last year the shares were trading for 12,020p which means the shares are up 3% over a 12-month period.
For and against investing
FOR: On the plus side, Spirax has increased its yearly dividend for 54 years in a row! Not many firms can claim such a remarkable feat. Excellent performance usually drives such a lengthy year-on-year dividend increase. I do understand that past performance is not a guarantee of the future, of course. Yet the FTSE 100 incumbent’s latest FY results, posted last month, made for positive reading and pushed the shares upwards. Revenue and profit increased by 13% and 29% respectively. The dividend per share increased by 15%.
AGAINST: And the negatives? Excellent performance can help boost dividend payments but with such a high share price and low dividend yield of just over 1%, Spirax could be a bit of a trap right now. The shares have a price-to-earnings ratio of 40, which I consider high and is a risk. I think I could find other FTSE 100 stocks with a lower share price and a higher dividend yield.
FOR: Spirax-Sarco’s rise to prominence as well as positive performance and dividend record have emerged due to its market position. Its solutions offer many of its commercial customers fast resolutions to business-critical problems. Due to this, it is able to charge a premium for its services. Additionally, its flexibility in creating bespoke tailored solutions allows it to have deep seated and lucrative relationships with its customers. These factors have boosted performance and driven the shares upwards in recent years.
AGAINST: Many FTSE 100 stocks have suffered in recent months due to macroeconomic issues such as rising costs, as well as supply chain issues. These issues could affect Spirax-Sarco too. They could affect the bottom line, performance, share price and shareholder returns.
A FTSE 100 stock to buy or avoid?
Would I buy Spirax-Sarco shares for my holdings right now? The short answer is no. Its high valuation as well as current macroeconomic uncertainty lead me to look for better value stocks with better dividend yields for my holdings.
I will keep a keen eye on developments at Spirax and if we see another stock market crash or even a market correction, I’d be tempted to snap up the shares for my holdings should the share price come down.