Renishaw (LSE:RSW) is one of the most expensive stocks on the FTSE 250 index based on share price. Should I buy or avoid the shares?
So what is Renishaw and what does it do? It designs, develops and delivers solutions and systems that provide precision, control and measurement tools. Renishaw’s tools are used in a multitude of industries including healthcare, transport, electronics and agriculture.
What’s the current state of play with the Renishaw share price then? Well, as I write, the shares are trading for 3,864p. At this time last year, the shares were trading for 5,550p, which is a 30% drop over a 12-month period.
I do believe macroeconomic headwinds and the geopolitical issues in Ukraine, which caused the stock market correction, have pushed down Renishaw and many other FTSE 250 stocks.
To buy or not to buy?
So what are the pros and cons of me buying this stock?
FOR: The first pro of Renishaw shares I found was its performance track record (I do understand past performance is not a guarantee of the future, however). Looking back, I can see it has recorded consistent revenue and profit in the past four years. A tough 2020, caused by the pandemic, was offset by a return to revenue and profit growth in 2021 FY results. Coming up to date, Renishaw released a trading update released in May covered the nine months ended 31 March 2022. Revenue and profit have increased substantially compared to the same period last year and should underpin further full-year growth when these results are released later this year.
AGAINST: At current levels, the valuation of Renishaw looks a tad high for my liking. The shares are currently on a price-to-earnings ratio of 22. This is after they have fallen 30% in a 12-month period. Perhaps they were overvalued previously — maybe they still are? The results for FY22 would help me paint a better picture around valuation depending on how the shares react.
FOR: Renishaw shares pay a dividend that could boost my passive income stream. Dividends are underpinned by performance, which looks be heading in an upward trajectory based on recent results. It is worth noting that dividends can be cancelled at any time, however. A dividend yield of just under 2% is on offer currently, and this is in line with the FTSE 250 average.
AGAINST: Renishaw is an international business with more than 79 offices in 37 countries and over 5,000 employees. This profile and presence is usually a positive. My concern here is the impact of the pandemic and Renishaw’s exposure. When the pandemic struck in 2020, Renishaw saw performance and returns dip. In several parts of the world, restrictions may come back into force to curb rising infection levels. This could have an impact on performance and returns.
A FTSE 250 stock I’m keeping on my watch list for now
For now I will keep a keen eye on developments when it comes to Renishaw. I am keen to view full-year results later in the year, as well as understand ongoing macroeconomic and pandemic-related challenges it faces and how it plans to mitigate these.