FTSE 100 incumbent Intertek (LSE:ITRK) has seen its share price continue to fall in recent months. Is there a potential for a recovery here, and should I add the shares to my holdings? Let’s take a closer look.
Quality assurance
As a quick introduction, Intertek is a quality assurance business that provides its services to a number of industries and businesses throughout the world. In simple terms, it helps firms with assurance, testing, inspection, and certification to its customers on their products which they then bring to market. Product testing and quality assurance is a key part of product development.
So what’s happening with Intertek shares currently? Well, as I write, they’re trading for 4,207p. At this time last year, the stock was trading for 5,132p, which equates to a 18% decline over a 12-month period.
A FTSE 100 stock with risks
Firstly, despite the fact that Intertek shares have been falling, they look a bit pricey to me at current levels. They’re on a price-to-earnings ratio of 22. The main thought that springs to my mind here is that recovery could already be priced in. Should I wait and see if the shares fall further before deciding to make my move? I need to take a look at other fundamentals to help me decide if I should buy the shares at current levels.
Another risk of buying Intertek shares is the firm’s propensity for acquisitions. Acquisitions are generally positive to boost growth and performance, but there is always a chance they can be costly mistakes. Sometimes, firms can overpay for an acquisition, which can affect a balance sheet, returns, and investor sentiment. I will keep an eye on Intertek’s acquisitions going forward.
The positives and what I’m doing now
So to the positives then. Firstly, I am buoyed by the fact that Intertek is a global business with a long history of trading, performance, growth, and building relationships. At the end of the day, all the products we use on a day-to-day basis require assurance, testing, and certification. This essential requirement should benefit Intertek for years to come, in my opinion.
Next, I view Intertek as a great FTSE 100 stock to boost my passive income stream through dividends. At current levels, the shares’ dividend yield stands at 2.5%. Despite being lower than the index average, the consistency of the company’s dividend payouts and record are positive. I am aware that dividends are not guaranteed, however.
Finally, performance underpins dividend payouts and Intertek has a good track record of performance. I am aware that past performance is not a guarantee of the future, however. Looking back, I can see Intertek has a consistent record of revenue and profit generation across the past four years.
Overall, I believe Intertek is a quality FTSE 100 stock. This is perhaps why its current P/E ratio is slightly high. Warren Buffett once said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”. I believe this is the case with Intertek, which is why I would add the shares to my portfolio and hold it for the long term.
