Earnings: the Halma share price dips 5% on results day, but don’t let that fool you!

Here’s why I think Halma share price weakness is a compelling opportunity for investors to consider and research this amazing business.

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When the full-year results for Halma (LSE: HLMA) hit the newswires on Thursday 15 June, the market shrugged its shoulders and the share price dropped by about 5%.

However, the company has been performing well. And that’s the issue. It always seems to perform well. And the share price and valuation have probably been up with events.

Therefore, in the absence of unexpected ultra-good news, there’s probably nothing to excite the market and drive the shares higher – at least for now.

A longer-term opportunity

But there’s a longer-term opportunity going on here for investors who are looking beyond mere days and weeks. And at this point, it’s probably helpful to outline a few of the company’s achievements.

Halma describes itself as a global group of life-saving technology companies. And over the past 10 years, the stock has risen by about 360%. 

That outcome provides a good feel for the success of the growth strategy. And strong business progress has driven the stock over the period.

In today’s report, the directors pointed out the firm has now achieved 20 consecutive years of profit growth. And shareholders have been rewarded with 44 consecutive years of dividend advances of 5% or more.

There’s no doubt that Halma has delivered steady business progress over an extended, multi-year period. And the shares provided investors with one of the most graceful long-term uptrends I’ve ever seen.

Meanwhile, the quality indicators have been good the whole time for the business. And the valuation has been full. Indeed, most strong businesses attract a robust valuation. 

But the Halma share price pulled back in 2022. And I see that move lower as an opportunity. The underlying business has continued to progress since then, but the stock has languished well below its peak.

For context, at 2,305p, the share price is up by about 16% over the past year. But its down by about 28% from its peak in December 2021.

The valuation is lower now than it was in 2021. And value has been building up in the business since.

A positive outlook

In the trading year to March 2023, Halma achieved record revenue up 21% year on year, and 10% higher on an organic basis. 

Chief executive Marc Ronchetti said the company has “substantially increased” strategic investment to record levels. And that should help to drive future growth both organically and via acquisitions.

Halma reckons it has a “highly sustainable” growth model. And it’s focused on maintaining expanding returns over the longer term, while delivering performance in the shorter term.

However, City analysts expect earnings to grow by around 9% in the current trading year. And set against that expectation, the forward-looking price-to-earnings rating is just below 29.

One of the risks for investors here is that the earnings multiple may continue to shrink and take the stock lower. And that could happen if earnings disappoint in the years ahead.

However, the business has good form and is trading well. So, I’m inclined to see the shares as attractive now and well worth consideration for a diversified portfolio focused on the long term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma Plc. 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.

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